The Equipment Leasing & Finance Foundation (the Foundation) has released the August 2011 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 $521 billion equipment finance sector. Overall, confidence in the equipment finance market is 50.0, down from the July index of 56.2, indicating apparent industry reaction to U.S. economic conditions and federal government fiscal management and policies.
When asked about the outlook for the future, survey respondent Russell Nelson, President, Farm Credit Leasing Services Corporation, said, "Pent-up demand for replacement assets and improving conditions in select industries may continue to drive strong results for the remainder of 2011. The key to future business confidence rests with leadership in Washington, DC, and their ability to craft a budget that Wall Street, Main Street, and the global community view positively."
August 2011 Survey Results:
The overall MCI-EFI is 50.0, a decrease from the July index of 56.2.
- When asked to assess their business conditions over the next four months, 13.2 percent of executives responding said they believe business conditions will improve over the next four months, slightly decreased from 14.0 percent in July. 65.8 percent of respondents believe business conditions will remain the same over the next four months, a decrease from 81.4 percent in July. 21.1 percent of executives believe business conditions will worsen, a sharp increase from 4.7 percent in July.
- 21.1 percent of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 14 percent in July. 57.9 percent believe demand will "remain the same" during the same four-month time period, a decrease from 74.4 percent the previous month. 21.1 percent believe demand will decline, up from 11.6 percent who believed so in July.
- 21.1 percent of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 23 percent in July. 73.7 percent of survey respondents indicate they expect the "same" access to capital to fund business, a decrease from 76.7 percent the previous month. 5.3 percent of survey respondents expect "less" access to capital, the first time in nine months any respondents said they expect "less" access to capital.
- When asked, 23.7 percent of the executives reported they expect to hire more employees over the next four months, down from 32.6 percent in July. 65.8 percent expect no change in headcount over the next four months, an increase from 58 percent last month, while 10.5 percent expect fewer employees, an increase from 9.6 percent in July.
- 55.3 percent of the leadership evaluate the current U.S. economy as "fair," down from 72 percent who did in July. 44.7 percent rate it as "poor," up from 27.9 percent last month.
- 5.3 percent of survey respondents believe that U.S. economic conditions will get "better" over the next six months, down from 9.3 percent in July. 63.2 percent of survey respondents indicate they believe the U.S. economy will "stay the same" over the next six months, down from 79 percent in July. 31.6 percent responded that they believe economic conditions in the U.S. will worsen over the next six months, up from 11.6 percent who believed so last month.
- In August, 28.9 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 44.2 percent in July. 68.4 percent believe there will be "no change" in business development spending, up from 55.8 percent last month, and 2.6 percent believe there will be a decrease in spending, up from no one who believed so last month.
August 2011 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.
Bank, Middle Ticket: "Until such time that the federal government can remove the unpredictability related to taxes and fiscal policy the economy will continue to sputter as the business community will be very cautious with respect to additional investment. This scenario will not bode well for the equipment finance industry." -- Executive, Middle Ticket, Bank
Independent, Middle Ticket: "Growth is slower than expected but we are seeing some positive signs of larger capital expenditures." -- Aylin Cankardes, President, Rockwell Financial Group
Bank, Small Ticket: "Recent actions in D.C. make our environment very uncertain." -- Executive, Small Ticket, Bank
The Equipment Leasing and Finance Association's (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $521 billion equipment finance sector, showed overall new business volume for July was $5.7 billion, up two percent from volume of $5.6 billion in the same period in 2010. Compared with June volume of $7.3 billion, July volume decreased by 22 percent. Year to date, new business volume is up 24 percent over last year. However, the percentage of responding companies that experienced a drop in volume from the year earlier period rose to 36 percent.
Credit quality is mixed. Receivables over 30 days increased eight percent to 2.7 percent in July from 2.5 percent in June, but declined by 21 percent compared to the same period in 2010. Charge-offs decreased 37 percent in July from the previous month, and decreased by 50 percent from the same period in 2010.
Credit standards tightened in July as the number of lease applications approved decreased to 76.3 percent from 78.7 percent the previous month. Fifty-nine percent of participating organizations reported submitting more transactions for approval during the month, a decrease from 63 percent in June.
Finally, total headcount for equipment finance companies in July showed no significant change month to month and year over year. Supplemental data show that the construction industry and small and medium-sized enterprises led the underperforming sectors.
Separately, the Equipment Leasing & Finance Foundation's Monthly Confidence Index (MCI-EFI) for August is 50.0, down 11 percent from the July index of 56.2, indicating apparent industry reaction to U.S. economic conditions and federal government fiscal management and policies. For more detailed information on the MCI-EFI visit www.LeaseFoundation.org.
ELFA President and CEO William G. Sutton, CAE, said: "Compared to a year ago, the equipment leasing and finance industry continues to show improvement. However, the sluggish U.S. economic recovery appears to be responsible, in part, for an uneven demand dynamic for investment in capital equipment."
Anthony Cracchiolo, President and CEO, Vendor Services, U.S. Bancorp Equipment Finance, located in Portland, OR, said, "Our overall business volume continues to improve with solid double-digit growth demonstrated through the first and second quarter, as compared to the same period in 2010. In July, while we continued to show growth, we also began to see a softening in demand. How this plays out throughout the remainder of the year is unclear, but we are hopeful that momentum will build in the fourth quarter."