Equipment Lease Finance Industry Confidence Remains Steady in September

WASHINGTON (September 20, 2013) – The Equipment Leasing & Finance Foundation (the Foundation) has released the September 2013 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). 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 from the $725 billion equipment finance sector. Overall, confidence in the equipment finance market is 61.3, steady with the August index of 61.0.

When asked about the outlook for the future, MCI survey respondent Russell Nelson, president of CoBank Farm Credit Leasing, said, “Stable to slightly favorable economic news, combined with rising equipment costs and interest rates, are driving a continued increase in capital expenditures within a number of industries. Current tax advantages, flexible structures and terms, used equipment values, and attractive fixed rates are contributing to another strong year for equipment financing in 2013, with potential increasing momentum into 2014.”

September 2013 Survey Results:

The overall MCI-EFI is 61.3, steady with the August index of 61.0.

• When asked to assess their business conditions over the next four months, 30.3 percent of executives responding said they believe business conditions will improve during the next four months, down from 32.4 percent in August.  66.7 percent of respondents believe business conditions will remain the same during the next four months, down from 67.6 percent in August.  3 percent believe business conditions will worsen, up from no one who believed so the previous month.

• 33.3 percent of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase during the next four months, up from 23.5 percent in August.  63.6 percent believe demand will “remain the same” during the same four-month time period, down from 76.5 percent the previous month.  3 percent believe demand will decline, up from no one who believed so in August.

• 18.2 percent of executives expect more access to capital to fund equipment acquisitions during the next four months, down from 20.6 percent in August. 81.8 percent of survey respondents indicate they expect the “same” access to capital to fund business, an increase from 79.4 percent the previous month. No one expects “less” access to capital, unchanged from August.

• When asked, 36.4 percent of the executives reported they expect to hire more employees during the next four months, an increase from 29.4 percent in August.  60.6 percent expect no change in headcount during the next four months, down from 64.7 percent last month.  3 percent expect fewer employees, down from 5.9 percent of respondents who expected fewer employees in August.

• 90.9 percent of the leadership evaluates the current U.S. economy as “fair,” steady with 91.2 percent last month.  9.1 percent rate it as “poor,” also steady with 8.8 percent in August.

• 18.2 percent of survey respondents believe that U.S. economic conditions will get “better” during the next six months, a decrease from 26.5 percent in August.  78.8 percent of survey respondents indicate they believe the U.S. economy will “stay the same” during the next six months, an increase from 70.6 percent in August.  3.0 percent believe economic conditions in the U.S. will worsen during the next six months, unchanged from last month.

• In September, 30.3 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, an increase from 29.4 percent in August.  66.7 percent believe there will be “no change” in business development spending, a decrease from 70.6 percent last month.  3 percent believe there will be a decrease in spending, up from no one who believed so in August.

September 2013 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.

Independent, Small Ticket
“Our long term view is optimistic. However, in the near term the challenge of continued growth becomes greater as margins continue to narrow and demand is not at a robust pace. Small business owners—who are our customers—are still not exhibiting the same behavior as it relates to capital equipment acquisition that their larger counterparts are experiencing.  It is sometimes as though the economy has two very different sides.”  Valerie Hayes Jester, President, Brandywine Capital Associates Inc.

Independent, Small Ticket
“We continue to see moderate demand in the small business segment.  Job growth continues to be unimpressive and not significant enough to propel anything more than modest demand for new equipment.  Portfolio performance is outstanding in terms of delinquency and defaults and we don’t expect any significant change in the near term.”  David Schaefer, CEO, Mintaka Financial, LLC

Bank, Middle Ticket
“At this point, I don’t believe we have an economic recovery but economic stagnation.  There is no momentum in the economy, only the hope that conditions may get better but hopefully won’t get any worse.  The upcoming fiscal battle in Washington will only add to the stagnation.  As such, the equipment finance market will see only marginal growth over the coming months.” Thomas Jaschik, President, BB&T Equipment Finance

Why an MCI-EFI?
Confidence in the U.S. economy and the capital markets is a critical driver to the equipment finance industry. Throughout history, when confidence increases, consumers and businesses are more apt to acquire more consumer goods, equipment and durables and invest at prevailing prices. When confidence decreases, spending and risk-taking tend to fall. Investors are said to be confident when the news about the future is good and stock prices are rising.

Who participates in the MCI-EFI?
The respondents are comprised of a wide cross section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies. The MCI-EFI uses the same pool of 50 organization leaders to respond monthly to ensure the survey’s integrity. Since the same organizations provide the data from month to month, the results constitute a consistent barometer of the industry’s confidence.

How is the MCI-EFI designed?
The survey consists of seven questions and an area for comments, asking the respondents’ opinions about the following:

1. Current business conditions
2. Expected product demand over the next four months
3. Access to capital over the next four months
4. Future employment conditions
5. Evaluation of the current U.S. economy
6. U.S. economic conditions over the next six months
7. Business development spending expectations
8. Open-ended question for comment

How may I access the MCI-EFI?
Survey results are posted on the Foundation website, http://www.leasefoundation.org/IndRsrcs/MCI/, included in the Foundation Forecast newsletter and included in press releases. Survey respondent demographics and additional information about the MCI are also available at the link above.