U.S. households were able to reduce overall debt levels in the first three months of the year, which could lead to increased consumer spending in the near future – a welcome sign for the retail sector.
Despite an unexpected rise in sales during April, retailers have been struggling thus far in 2013. However, if sales begin to pickup due to lower debt levels, these businesses might have the need to replenish inventory. For small- and medium-sized retailers, this can be difficult to do without assistance, but inventory financing could be an option to help.
Household debt fell 1 percent in the first quarter to $11.2 trillion, according to the Federal Reserve Bank of New York's quarterly report on household debt. This brought debt to the lowest level since 2006.
"Household deleveraging has resumed its previous trajectory," said Wilbert van der Klaauw, a senior vice president and economist at the New York Fed. "We'll look to see if this pace of debt reduction and delinquency improvements will persist."
Mortgage debt showed the biggest decrease, dropping to $7.93 trillion in the first quarter from $8.03 trillion in the previous three months. Meanwhile, the largest increase was student debt, jumping $20 billion.
With household debt levels falling, consumers might be more willing to spend money on everyday expenses in the near future, potentially leading to additional business for retailers.
As product is purchased, these companies could need to replenish inventory, which can be a struggle for small- to medium-sized businesses. Luckily, inventory financing is available to those that are turned away from a bank.
This type of asset-based lending agreement allows retailers to use current inventory as collateral to obtain a revolving line of credit, which can be used to keep shelves stocked.