Consumer Spending Stalls, Here’s Why We’re Not Sweating It

As a merchant cash advance company we spend a lot of time monitoring the economy. Just about every small business owner watches the economy closely as well. Since MCA’s primarily service small business owners, we like to keep a close eye on the economy too. Why do we mention all of this? Because consumer spending growth slowed, and that has many people concerned.

We’re not worried about this development, however. Having dug into the numbers and done a bit of larger analysis, we don’t believe that slowing consumer spending is anything that small businesses should fret over. Think we’re being a bit over confident? Give us a chance to explain.

First, consumer spending did manage an uptick, though it was only .2% in January. A lot of economists fret when they see growth slowing. As a merchant cash advance firm we don’t quite focus on macrotrends and economic forecasting. Still, since our MCAs are generally provided to small businesses, we do keep a close eye on the economy.

Slowdowns have a disproportionate impact on small businesses. If the economy sinks, small businesses will often bring in lower revenues. Since our cash advances offer funding in exchange for a portion of future sales, we have to watch for dropping revenues. Thus, as an MCA provider we do worry about economic slow downs.

Except, we’re not worried right now. Why? Three reasons. First, growth of .2% may not be inspiring, but it’s nothing we are going to worry about either. As long as spending continues to grow, we’re likely to remain upbeat. Of course, consumer spending isn’t the only factor we watch.

Second, inflation has been on the rise. Steady but manageable inflation is a sign of a strong economy. Yes, inflation can slow consumer spending, but it’s still a good indicator. Third, the IRS is sending out refund checks later than usual. This will delay refund spending.

Inflation on the Rise

Annual inflation rose by 1.9% in January. This is the highest amount seen since 2012. It’s also close to the Fed’s target. This inflation rate has us feeling upbeat if anything. The details are messy, but low inflation or worse, deflation, encourage consumers to save rather than spend. For our MCA customers that’s bad news as less money will be spent at their businesses.

Solid inflation is a good sign, however, now that the US is nearing full employment and inflation is at a healthy level, expect the Fed to raise interest rates. For small businesses, this means loan rates will rise. Luckily, MCA providers aren’t beholden to said interest rates as our business model doesn’t rely on the Fed rate. Of course, the entire economy and markets can be affected by Fed rates, so no one is truly “immune”.

IRS Slow Repayment a Likely Crimp on Spending

A new law that has been put in place prevents the IRS from repaying tax payments earlier than mid-February. IRS checks are a big source of consumer spending.

Many of our MCA clients benefit from annual tax refund spending sprees. Consumers love to take their checks and spend on big ticket items, such as fridges and TVs, as well as other expensive investments, like vacations.

This time around we anticipate our MCA clients to enjoy the same once again, but the biggest spending spree will probably come a bit later in the spring. March and April could be big months for our merchant cash advance customers.