On Feb. 22, the Equipment Leasing & Finance Foundation released its February 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 up for the third consecutive month at 58.7, an increase from the January index of 54.2, reflecting industry participants’ increasing optimism despite a wary eye on economic conditions and government management of fiscal policies.
When asked about the outlook for the future, MCI survey respondent Anthony Cracchiolo, president and CEO of Vendor Services for US Bank Equipment Finance, said, “The industry continues to look stable and positioned on solid footing for future growth. The replacement economy is well under way. However, expansion of the markets is still questionable. The next several months will tell the story for 2013 and answer the question of whether 2013 will see moderate or significant growth. In either case, the equipment finance industry will be on the leading edge of the overall economy.”
February 2013 survey results indicated that the overall MCI-EFI is 58.7, up from the January index of 54.2. When asked to assess their business conditions over the next four months, 20% of the responding executives said they believe business conditions will improve over the next four months, up from 6.1% in January; 77.1% of respondents said they believe business conditions will remain the same over the next four months, down from 87.9% in January; and 2.9% believe business conditions will worsen, down from 6.1% the previous month.
Survey results show that 20% of survey respondents believe demand for leases and loans to fund capital expenditures (CAPEX) will increase over the next four months, an increase from 12.1% in January. Also, 77.1% believe demand will “remain the same” during the same four-month time period, up from 75.8% the previous month; 2.9% believe demand will decline, down from 12.1% in January.
Additionally, 22.9% of executives expect more access to capital to fund equipment acquisitions over the next four months, up from 18.2% in January; and 77.1% of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 85.3% the previous month. No one expects “less” access to capital, a survey result that is unchanged from January.
When asked, 22.9% of the executives reported that they expect to hire more employees over the next four months, down from 24.2% in January; 65.7% expect no change in headcount over the next four months, down from 69.7% last month; and 11.4% expect fewer employees, up from 6.1% of respondents who expected fewer employees in January.
In the survey, 85.7% of the leadership evaluates the current US economy as “fair,” down from 87.9% last month; and 11.4% rate it as “poor,” down from 12.1% in January. One survey respondent rated the current economy as “excellent.”
Results showed that 22.9% of survey respondents believe that US economic conditions will get “better” over the next six months, up from 6.1% in January; 74.3% of survey respondents indicate they believe the US economy will “stay the same” over the next six months, down from 84.8% in January; and 2.9% believe economic conditions in the US will worsen over the next six months, a decrease from 9.1% who believed so last month.
In February, 37.1% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 30.3% in January; 60% believe there will be “no change” in business development spending, down from 69.7% last month; and 2.9% believe there will be a decrease in spending, up from no one who believed so last month.
Survey respondents comprise a wide cross-section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies. In the February 2013 MCI survey, comments from industry leaders offered differing points of view on the current and future outlook for the industry, depending on the market segment they represent:
Independent, Small Ticket: “Demand for equipment in the small-ticket space has been very strong considering that overall economic growth is low,” said David Schaefer, president of Orion First Financial, LLC. “It’s hard to see how this is sustainable. Until we see strong and consistent job growth, we are expecting slower growth this year. Our outlook for credit quality continues to remain positive.”
Independent, Middle Ticket: “It appears sources are more plentiful, but the bar keeps getting raised for credit size and worthiness coupled with higher rates,” said George Booth, managing director of Black Rock Capital, LLC. “There seems to be a dichotomy of credit quality to rates.”
Bank, Middle Ticket: “Continuation of low interest rates, extension of bonus depreciation/Section 179, pent-up demand for replacement assets, upswing in housing and construction starts, and bullish financial markets should bode well for the equipment finance industry with similar to slightly higher growth in volume over 2012,” said Russell Nelson, president of Farm Credit Leasing Services Corporation. “General sentiment among customers and industry players is cautiously optimistic.”