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Strong consumer sentiment could signal more borrowing activity

Sep 04, 2013 Philip Burgess

Consumers are the driving force behind the borrowing market, and when Americans feel confident in the economy, both spending and borrowing activity can pick up. Sentiment levels remained high in August, which is why short term lenders might want to prepare for an influx of demand.

The Thomson Reuters/University of Michigan final index of consumer sentiment in August dropped less than expected to 82.1, from 85.1 in the previous month, which was a six-year high. Economists surveyed by Bloomberg called for a drop to 80.

Experts revealed that higher mortgage rates are behind the slight dip in confidence, as the housing market recovery is being threatened. However, sentiment levels still remain high enough for consumers to fuel the economy.

"There was a good bounce in confidence a couple of months ago, and there has probably been a little bit of reversal in the last couple of months as mortgage rates have risen," Jim O'Sullivan, an economist at High Frequency Economics, told Bloomberg.

In the past couple of months, higher confidence levels have been boosting consumer spending, and that trend continued in July. The U.S. Department of Commerce reported a 0.1 percent bump in expenditures, following an upwardly revised 0.6 percent increase in June.

To see further increases to consumer spending, bigger job and wage gains are needed in the near future. July saw personal income edge up by 0.1 percent, while disposable personal income was up 0.2 percent.

Short term lending could prove beneficial when spending picks up
As consumers spend more money, they could be putting themselves at risk of entering financial troubles should unexpected expenses arise. For example, a surprise trip to the emergency room could end up being a budget buster, potentially leading to people falling short on essential expenses.

Fortunately, short term lending is available in these times of need. Consumers who need to cover their credit card or utility bill after a surprise cost, can take advantage of one of these loans, as they provide funds for a one or two week term. Critics of this form of lending say the interest rates are far too high, but, in reality, the amount of interest accrued is more than likely going to be less than what the late fees or penalties on a missed payment would be.