With the economy showing signs of improvement, consumers have begun to spend more money – a good sign for U.S. retailers.
Should higher consumer spending translate into retail sales, small- to medium-sized businesses may have a need for inventory financing in the near future.
American's reported average daily spending of $90 in May – the highest since October 2008, according to Gallup. This was also the highest spending in May since it was $114 per day in 2008.
This spending bump is a welcome sign after the U.S. Department of Commerce reported an overall decline in consumer outlays in April. Spending declined 0.2 percent in the first month of the second quarter, with personal incomes falling for the first time since January.
"Spending growth is going to be soft," Gus Faucher, senior economist at PNC Financial Services, told Bloomberg. "Inflation is too low from the Fed's perspective, so they are going to be cautious about tapering bond purchases intended to boost the economy. We will see better growth toward the end of the year."
As consumers begin to spend more, small- to medium-sized retailers could reap the benefits. Higher sales levels can potentially lead to a need for additional inventory, but businesses of this size often can't make these types of purchases without assistance.
Fortunately, inventory financing is available to help out. This type of asset-based lending allows retailers to use current inventory as collateral to obtain a revolving line of credit, which, in turn, can be used to purchase product.
Even if high consumer spending doesn't lead to more sales, retailers could still benefit from inventory financing, as the revolving line of credit can be useful during periods where cash flow falls below normal levels.