Uncertain outlook for equipment finance

The outlook for the equipment finance sector remains uncertain, with concerns about the November election and its impact on the US economy behind a further drop in confidence, according to the latest analysis from the Equipment Leasing and Finance Foundation (ELFF).

Its June 2016 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) shows confidence in the equipment finance market eased for the second consecutive month to 52.3 from the May index of 55.1.

The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives. When asked to assess their business conditions over the next four months, 9.4% of executives responding said they believe business conditions will improve over the next four months, a decrease from 16.1% in May, while 21.9% believe business conditions will worsen, up from 16.1% the previous month.

MCI-EFI survey respondent Robert Boyer, president, Susquehanna Commercial Finance, said: “Increased consumer spending and confidence indications create some level of optimism, but 2016 capital investment will be heavily impacted by the uncertainty caused by the November election.”

Overall 6.3% of survey respondents believe demand for leases and loans to fund capital expenditures will increase over the next four months, a decrease from 16.1% in May. An increasing number (71.9%) believe demand will “remain the same” during the same four-month time period, up from 61.3% the previous month.

There has also been a fall in the number of executives who expect more access to capital to fund equipment acquisitions over the next four months, which now stands at 15.6%, a decrease from 19.4% in May. Most (81.3%) of survey respondents indicate they expect the “same” access to capital to fund business, an increase from 74.2% the previous month, and only 3.1% expect “less” access to capital, a decrease from 6.5% last month.

None of the leadership evaluates the current US economy as “excellent,” unchanged from last month. Almost all (96.9%) of the leadership evaluate the current US economy as “fair” and 3.1% rate it as “poor,” both unchanged from May.

The survey findings suggest that most executives in the equipment finance industry are preparing themselves for a plateau in activity. Just 6.5% of the survey respondents believe that US economic conditions will get “better” over the next six months, unchanged from May.

Economy to “stay the same”

Meanwhile three quarters (75%) of survey respondents indicate they believe the US economy will “stay the same” over the next six months, an increase from 64.5% the previous month. There has been a drop in the number (18.8%) who believe economic conditions in the US will worsen over the next six months, a decrease from 29.0% who believed so last month.

“Rates remain low, capital is abundant, and credit appetites appear to be widening—all good news for would-be borrowers. On the other hand, we are experiencing a political environment that seems circus-like and a nation that is being rocked by threats of terrorism. We do not expect to see small and mid-size businesses choosing to expand and invest with certainty. I believe the rest of this year will see a reasonable flow of business, but I’m not expecting a strong close to 2016,” concluded Valerie Hayes Jester, president, Brandywine Capital Associates.

Thomas Haschak, president, BB&T Equipment Finance, agreed: “Given the choppy performance of the US economy and political uncertainty I believe the balance of 2016 will be similar to the first half; not an optimistic outlook for the industry.”