Retail inventory financing demand could rise with high levels of consumer confidence

Despite a slight dip in July, consumer confidence levels remained high, which could help drive demand for retail inventory financing among the country's small- to-medium sized businesses. 

As Americans have strong sentiment toward the economy and their personal financial situations, spending could pick up, potentially leading to heightened levels of retail sales. With more product coming off the shelves, there could be a need to replenish stock, which is where inventory financing could come in handy. 

Consumer confidence dipped slightly in early July
Sentiment unexpectedly fell in the first week of July, but is still at a high level. The Thomson Reuters/University of Michigan preliminary sentiment index dropped to a mark of 83.9 from 84 in the previous month. However, this decline was unexpected, as economists surveyed by Bloomberg called for a gain to 84.7. 

"The volatility in the financial markets over the last month may have arrested the upward trend in sentiment," Ryan Wang, economist at HSBC Securities, told Bloomberg. "In the second half, I think you'll still get some benefit from the upward trend in home prices but I think consumer confidence is likely to be volatile for the rest of the year."

Rising home prices are helping keep confidence high
Though sentiment dropped in July, home prices have been one of the reasons levels have remained high for the past months. 

The May CoreLogic Home Price Index report revealed a 2.6 percent increase from the previous month and a 12.2 percent year-over-year gain. Looking forward, the Pending HPI projected prices will rise 2.9 percent on a monthly basis in June and 13.2 percent when compared to the same time a year ago. 

"It's been more than seven years since the housing market last experienced the increases that we saw in May, with indications that the summer months will continue to see significant gains," said Mark Fleming, chief economist for CoreLogic. "As we approach the half-way point of 2013, home prices continue to respond positively to the reductions in home inventory thus far."

Retail inventory financing can be beneficial when sales pick up
Should high levels of consumer confidence lead to more retail sales, small- to medium-sized businesses might need to replenish inventory. 

Without the ability to purchase product on their own dime, retail inventory financing could be beneficial. This type of asset-based lending allows a company to obtain a revolving line of credit using current product as collateral, which can then be used to keep shelves full.