Equipment finance business confidence drops

Confidence in the equipment finance market is on a downward trend according to figures released by the Equipment Leasing & Finance Foundation.

Its monthly index on prevailing business conditions and expectations for the future (MCI-EFI) fell to 52.8 in June, easing from 59.2 in May.

MCI-EFI survey respondent Quentin Cote, president of Mintaka Financial said: “As unemployment is at record lows and employees are hard to come by, companies will rely more on capital equipment to support business growth and productivity growth from the employees they have.

“My concern is primarily the trade wars and their impact on the prices of goods. This will eventually weaken the purchasing power of consumers and small businesses.”

There has been a substantial fall in the number of executives who believe business conditions will improve over the next four months, with just 3.3% agreeing, down from 16.1% in May.

Most (80%) believe business conditions will remain the same over the next four months, an increase from 67.7% the previous month.

None of the 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.

Most (83.3%) believe demand will “remain the same” during the same four-month time period, an increase from 77.4% the previous month, while more than double (16.7%) now think demand will decline, up from 6.5% who believed so in May.

Despite the concerns, 40% of senior executives view the economy as “excellent”, although this is down from 51.6% in May. Around a half (56.7%) view the US economy as “fair,” while 3.3% evaluate it as “poor”.

A quarter (26.7%) of respondents believe economic conditions in the US will worsen over the next six months.

MCI-EFI survey respondent Michael Romanowski, president, Farm Credit Leasing, said: “Lack of progress on trade tariffs is beginning to spook the market. Customers are only buying what they need to replace and are hesitant to expand.”

Latest figures from the Equipment Leasing and Finance Association (ELFA) in its monthly leasing and finance index (MLFI-25) showed overall new business volume for May was $9.1 billion, up 18% compared to the same period last year, but year-to-date, cumulative new business volume was flat compared to 2018.

Receivables over 30 days were 1.7%, up from 1.5% the previous month and up from 1.6% the same period in 2018.

Charge-offs were 0.46%, up from 0.32% the previous month, and up from 0.31% in the year-earlier period.

Credit approvals were 75.9%, down from 76.8% in April. Total headcount for equipment finance companies was down 2% year-over-year.

Ralph Petta, ELFA president and CEO (pictured), said: “Responding ELFA members enjoyed a strong May, with new business volume growth trending upward. The continued low interest rate environment coupled with solid fundamentals in the US economy provide incentive for U.S. businesses to expand and grow their operations.

“As they do so, productive equipment becomes a critical component in serving their customers and enabling them to achieve success in the marketplace.

“However, at the same time, we notice a slight deterioration in credit quality, which bears monitoring. Recently, the Fed and other analysts raised concerns over potential storm clouds on the economic horizon. These warnings also bear close attention in the weeks and months ahead.”