WASHINGTON, DC–The Equipment Leasing & Finance Foundation (the Foundation) has released the October 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector in the U.S.
Overall, confidence in the equipment finance market is at 55.0, easing from the September index of 56.5 and steady with pre-COVID index levels. None of the industry leadership evaluated the current U.S. economy as “excellent,” unchanged from the previous month. But 55.6 percent of the leadership evaluated the current U.S. economy as “fair,” up from 46.4 percent in September. 44.4 percent evaluate it as “poor,” down from 53.6 percent last month.
At the same time, 25.9 percent of the survey respondents believed that U.S. economic conditions will get “better” over the next six months, a decrease from 50 percent in September. 59.3 percent indicated they believe the U.S. economy will “stay the same” over the next six months, an increase from 39.3 percent last month. Moreover, 14.8 percent believed economic conditions in the U.S. will worsen over the next six months, up from 10.7 percent the previous month.
When asked to assess their business conditions over the next four months, 29.6 percent of executives responding said they believe business conditions will improve over the next four months, down from 35.7 percent in September. Also, 51.9 percent believe business conditions will remain the same over the next four months, an increase from 46.4 percent the previous month. And 18.5 percent believe business conditions will worsen, an increase from 17.9 percent in September.
Moreover, 22.2 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 28.6 percent in September. 66.7 percent believe demand will “remain the same” during the same four-month time period, an increase from 64.3 percent the previous month. 11.1 percent believe demand will decline, an increase from 7.1 percent in September.
Meanwhile, in October 22.2 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, a decrease from 28.6 percent last month. 70.4 percent believe there will be “no change” in business development spending, a decrease from 71.4 percent in September. And 7.4 percent believe there will be a decrease in spending, up from none last month.
There are some positive signs. 33.3 percent of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 17.9 percent in September. 66.7 percent of executives indicate they expect the “same” access to capital to fund business, a decrease from 78.6 percent last month. None expect “less” access to capital, a decrease from 3.6 percent the previous month.
When asked, 25.9 percent of the executives report they expect to hire more employees over the next four months, up from 17.9 percent in September. 63 percent expect no change in headcount over the next four months, a decrease from 71.4 percent last month. But 11.1 percent said in October they expect to hire fewer employees, up slightly from 10.7 percent the previous month.
Survey results are posted on the Foundation web site, included in the Foundation Forecast eNewsletter, and included in press releases. Survey respondent demographics and additional information about the MCI are also available at the link above.
The Foundation also released highlights of the COVID-19 Impact Survey of the Equipment Finance Industry, a monthly survey of industry leaders that is designed to track the impact of the coronavirus pandemic on the equipment finance industry.
56 percent of companies said in October they expect that the default rate will be greater in 2020 than in 2019, down from 73 percent last month, 35 percent expect it to be the same compared to 20 percent in September, and 9 percent expect it to be lower compared to 7 percent last month. Only 7 percent of lenders reported having more than 10 percent of their portfolio now under deferral, down from 15 percent of lenders last month.
When asked to what extent regulatory and/or funding source pressures are limiting companies’ willingness or ability to provide deferrals now, 66 percent responded: “not at all,” 29 percent answered “somewhat,” and 4 percent indicated “substantially.” The largest percentage of respondents (58 percent) have 0.01-4.99 percent of dollars outstanding currently under payment deferral in their owned portfolio.
When asked about the outlook for the future, MCI-EFI survey respondent Bruce J. Winter, President, FSG Capital, Inc., said, “It’s now obvious that the economic fallout from this pandemic will continue for the foreseeable future and there will be no quick return to pre-COVID 19 economic metrics. While many of our clients have adapted to a new normal, others have spent their government stimulus and are at risk of closure without additional support.
“The resiliency of the equipment finance industry is without doubt, but as with other cycles, there will be winners and losers. In this cycle, those lucky enough to have little or no exposure to threatened industries will be the winners, while those with too much exposure to these same segments have no choice but to deal with significant stress.”