Equipment lease finance industry confidence improves

| July 23, 2012

Looks like there is a glimmer of hope in the construction/equipment sector.

Although we already know the equipment rental market has been going gangbusters, the Equipment Leasing & Finance Foundation (the Foundation) July 2012 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) released today shows that financing equipment is looking up. (For pie charts from the survey findings, click here.)

Generally speaking, do you expect your business conditions to get better or worse over the next four months?

The index found that confidence in the equipment finance market is 51.5, up from the June index of 48.5. According to the Foundation, this however reflects continuing concern about external economic factors and regulatory and political uncertainty.

The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $628 billion equipment finance sector.

When asked about the outlook for the future, MCI survey respondent Russell D. Nelson, president, Farm Credit Leasing Services Corporation, said, “Continued volatility/uncertainty at home and abroad may inhibit planned/needed capital expenditures during the next six months, but low interest rates and tax incentives will enable our industry to generate modest increases in asset volume and profitability through the remainder of 2012.”

He added, “Improving credit quality, stable earnings, and demand for innovative/creative lease and loan products should position our industry for improved growth in 2013 and beyond.”

The July 2012 Survey Results are as follows:

The overall MCI-EFI is 51.5, up from the June index of 48.5.

When asked to assess their business conditions during the next four months, 6.5 percent of executives responding said they believe business conditions will improve over the next four months, down from 8.1 percent in June. 71 percent of respondents believe business conditions will remain the same over the next four months, up from 64.9 percent in June. 22.6 percent believe business conditions will worsen, down from 27 percent the previous month.

12.9 percent of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 8.1 percent in June. 71 percent believe demand will “remain the same” during the same four-month time period, up from 64.9 percent the previous month. 16.1 percent believe demand will decline, down from 27 percent in June.

19.4 percent of executives expect more access to capital to fund equipment acquisitions over the next four months, up from 10.8 percent in June. 77.4 percent of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 86.5 percent the previous month. 3.2 percent survey respondents expect “less” access to capital, up from 2.7 percent who expected less access in June.

When asked, 35.5 percent of the executives reported they expect to hire more employees over the next four months, up from 24.3 percent in June. 64.5 percent expect no change in headcount over the next four months, virtually unchanged from 64.9 percent last month, while no one expects fewer employees, down from 10.8 percent in June.

71 percent of the leadership evaluates the current U.S. economy as “fair,” down from 78.4 percent last month. 29 percent rate it as “poor,” up from 21.6 percent in June.

Over the next four months do you expect to have more or less access to capital to fund your leasing and lending business

Question from the survey: Over the next four months do you expect to have more or less access to capital to fund your leasing and lending business? Source: Equipment Leasing & Finance Foundation

9.7 percent of survey respondents believe thatU.S.economic conditions will get “better” over the next six months, up from 8.1 percent in June. 71 percent of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, up from 64.9 percent in June. 19.4 percent believe economic conditions in theU.S.will worsen over the next six months, a decrease from 27 percent who believed so last month.

In July, 25.8 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 29.7 percent in June. 71 percent believe there will be “no change” in business development spending, up slightly from 70.3 percent last month, and 3.2 percent believe there will be a decrease in spending, up from no one who believed so last month.

July 2012 MCI Survey Comments from Industry Executive Leadership:

Depending on the market segment they represent, executives have differing points of view on the current and future outlook for the industry. The following are comments the Foundation gathered:

Independent, Micro Ticket 

“The long view is bullish for our industry. In the short run, however, I believe we will see sluggish demand unless and until the consumer side of our economy feels more secure about their financial well being and starts to spend more freely.” Paul Menzel, president and CEO, Financial Pacific Leasing, LLC

Independent, Small Ticket

“Businesses are showing some reluctance to expand or invest in new capital equipment due to the extremely slow economic recovery. It seems like we are in a wait-and-see mode.” David T. Schaefer, president, Orion First Financial, LLC

Bank, Middle Ticket

“For 2012, I would expect the industry to finish slightly above 2011 levels. However, long-term prosperity for equipment finance and the economy in general will hinge upon the outcome of the November election.” Anonymous

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