WASHINGTON, DC–There is growing cautious optimism in the future of the American equipment finance market, once the contentious U.S. election is sorted out but amidst the COVID-19 pandemic.
The Equipment Leasing & Finance Foundation (the Foundation) has released the November 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), which reported that confidence in the American equipment finance market grew to 56.1, an increase from the October index of 55.0.
The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the USD900 billion U.S. equipment finance sector. Here are the highlights:
–76.9 percent of the leadership evaluated the current U.S. economy as “fair,” up from 55.6 percent in October. 23.1 percent evaluated it as “poor,” down from 44.4 percent last month. None of the leadership evaluated the current U.S. economy as excellent, unchanged from the previous month.
–34.6 percent of the survey respondents believe that U.S. economic conditions will get better over the next six months, an increase from 25.9 percent in October. 50 percent indicate they believe the U.S. economy will stay the same over the next six months, a decrease from 59.3 percent last month. But 15.4 percent believe economic conditions in the U.S. will worsen over the next six months, up from 14.8 percent the previous month.
–When asked to assess their business conditions over the next four months, 26.9 percent of executives responding said they believe business conditions will improve over the next four months, down from 29.6 percent in October. 53.9 percent believe business conditions will remain the same over the next four months, an increase from 51.9 percent the previous month. Meanwhile 19.2 percent believe business conditions will worsen, an increase from 18.5 percent in October.
–19.2 percent of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, down from 22.2 percent in October. 69.2 percent believe demand will remain the same during the same four-month time period, an increase from 66.7 percent the previous month. 11.5 percent believe demand will decline, relatively unchanged from 11.1 percent in October.
–23.1 percent of the respondents expect more access to capital to fund equipment acquisitions over the next four months, down from 33.3 percent in October. 76.9 percent of executives indicate they expect the same access to capital to fund business, an increase from 66.7 percent last month. None expect less access to capital, unchanged from the previous month.
When asked, 30.8 percent of the executives report they expect to hire more employees over the next four months, up from 25.9 percent in October. 57.7 percent expect no change in headcount over the next four months, a decrease from 63 percent last month. 11.5 percent expect to hire fewer employees, relatively unchanged from 11.1 percent in October.
–In November, 26.9 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, an increase from 22.2 percent last month. 69.2 percent believe there will be no change in business development spending, a decrease from 70.4 percent in October. And 3.9 percent believe there will be a decrease in spending, down from 7.4 percent last month.
When asked about the outlook for the future, MCI-EFI survey respondent Michael Romanowski, president, Farm Credit Leasing, said, “Depending on what shakes out with the political environment will impact businesses’ longer-term plans for investment. The present environment is on shaky ground and fiscal stimulus is needed to stop the tremors.”
The Foundation has also released highlights of the COVID-19 Impact Survey of the Equipment Finance Industry, a monthly survey of industry leaders designed to track the impact of the coronavirus pandemic on the equipment finance industry.
According to the report 54 percent of companies expect that the default rate will be greater in 2020 than in 2019, down from 56 percent in October. Meanwhile 35 percent expect it to be the same, unchanged from last month and 11 percent expect it to be lower as compared to 9 percent last month. Only 4 percent of lenders reported having more than 10 percent of their portfolio now under deferral, down from 7 percent of lenders last month.
“Over the near term we expect continued volatility due to the election and impact of the continued COVID pandemic until such time as a vaccine is developed and accepted,” said Kirk Phillips, president and CEO, Wintrust Commercial Finance. “Mid-and long-term we expect continued growth due to the resilient nature of the U.S. economy and our industry.”