Equipment finance market outlook mixed

Expectations of a surge in activity in the equipment leasing market over the next few months are becoming more muted according to data from the Equipment Leasing and Finance Foundation (ELFF), which suggest that business leaders’ confidence in the market and the economic climate is starting to dip a little.

The ELFF’s latest Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) shows overall confidence in the sector now stands at 63, compared with the May index of 67.5. Designed to collect leadership data, the index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives.

The proportion who believe demand for leases and loans to fund capital expenditures will increase over the next four months is now 21.4%, down from 34.6% in May. Over three quarters (78.6%) currently believe demand will “remain the same” during the same four-month time period, up from two thirds (65.4%) the previous month.

There has also been a drop in the number of executives who believe business conditions will improve over the next four months, down from 30.8% in May to 17.9% this month. Most (82.1%) expect little change over the summer months, partly because of the continuing uncertainty over the Federal Reserve’ plans to raise interest rates.

Over two thirds (67.9%) of survey respondents believe the US economy will “stay the same” over the next six months, an increase from 65.4% in May, while there is now a tiny minority (3.6%) who feel economic conditions will worsen, an increase from none who believed so last month. There is also a drop in those who think economic conditions will get better, down from 34.6% in May to 28.6% currently.

In response to the figures, Thomas Jaschik, president, BB&T Equipment Finance, said: “I believe any rise in interest rates will spur activity within the equipment finance industry. Companies continue to defer capital expenditures as long as possible. A rise in interest rates will hopefully provide a catalyst to accelerate capital expenditures as costs may rise in the future.”

But others caution that this uplift could be further away than expected. “The revised first quarter GDP showed economic contraction and economists have revised down their growth projections for the full year. This will likely mean that interest rates will be kept at these historically low levels for longer than expected, further pressuring interest margins,” maintained Adam Warner, president, Key Equipment Finance (pictured) and immediate past chairman of the Equipment Leasing and Finance Association (ELFA)