Equipment Finance Industry Reports Confidence Increases in February

The Equipment Leasing & Finance Foundation (the foundation) has released the February 2019 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 $1 trillion equipment finance sector. Overall, confidence in the equipment finance market increased in February to 56.7, an increase from the January index of 53.4.

When asked about the outlook for the future, MCI-EFI survey respondent Frank Campagna, business line manager, M&T Commercial Equipment Finance, says, “Our optimism in the economy requires putting a blind eye to the current political climate with the hope that sensible minds will prevail; we are seeing a demand in most industry sectors and geographic regions that we serve. Clients, especially in the transportation sector, are turning over equipment more frequently and are returning to using tax lease structures more than in the recent past. Clients are also more interested in discussing financing alternatives and engaging in the planning process with us early, which indicates a willingness and need to spend on capex.”

February 2019 Survey Results:
The overall MCI-EFI is 56.7, an increase from 53.4 in January.

  • When asked to assess their business conditions over the next four months, 10 percent of executives responding said they believe business conditions will improve over the next four months, unchanged from January. 83.3 percent of respondents believe business conditions will remain the same over the next four months, an increase from 70 percent the previous month. 6.7 percent believe business conditions will worsen, down from 20 percent who believed so the previous month.
  • 13.3 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 3.3 percent in January. 83.3 percent believe demand will remain the same during the same four-month time period, an increase from 80 percent the previous month. 3.3 percent believe demand will decline, down from 16.7 percent who believed so in January.
  • 20.7 percent of the respondents expect more access to capital to fund equipment acquisitions over the next four months, down from 21.4 percent in January. 79.3 percent of executives indicate they expect the same access to capital to fund business, an increase from 78.6 percent last month. None expect less access to capital, unchanged from last month.
  • When asked, 26.7 percent of the executives report they expect to hire more employees over the next four months, a decrease from 33.3 percent in January. 56.7 percent expect no change in headcount over the next four months, an increase from 53.3 percent last month. 16.7 percent expect to hire fewer employees, up from 13.3 percent last month.
  • 36.7 percent of the leadership evaluate the current U.S. economy as excellent, 63.3 percent of the leadership evaluate the current U.S. economy as fair, and none evaluate it as poor, all unchanged from last month.
  • 13.3 percent of the survey respondents believe that U.S. economic conditions will get better over the next six months, up from 10 percent in January. 70 percent of survey respondents indicate they believe the U.S. economy will stay the same over the next six months, an increase from 50 percent the previous month. 16.7 percent believe economic conditions in the U.S. will worsen over the next six months, a decrease from 40 percent in January.
  • In February, 20 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, a decrease from 26.7 percent last month. 80 percent believe there will be no change in business development spending, an increase from 73.3 percent in January. None believe there will be a decrease in spending, unchanged from last month.

February 2019 MCI-EFI Survey Comments from Industry Executive Leadership

Bank, Small Ticket

“Economic fundamentals are good and the financial condition of the banking industry is as sound as it has ever been. Biggest concerns are the absence of strong political leadership and how it might result in a Black Swan event,” states Paul Menzel, CLFP, president and CEO, Financial Pacific Leasing Inc., an Umpqua Bank Co.

Independent, Small Ticket

“Low unemployment, low interest rates and rising wages are all positives. I’m concerned about continued trade wars, the uncertainty surrounding the partial government shutdown, and the fact we are increasing the deficit when the economy is booming, leaving no tools at the government’s disposal should there be a downturn,” says Quentin Cote, CLFP, president, Mintaka Financial LLC.

“We are seeing demand increase as the year progresses and the shutdown is temporarily off the table and not constantly in the news. Excess liquidity continues to keep margins compressed. Portfolio performance remained strong at the end of 2018 and we expect this trend to continue this year,” says Valerie Hayes Jester, president, Brandywine Capital Associates.

Bank, Middle Ticket

“We continue to face the head winds of low agriculture commodity prices and tariffs that persisted in 2018. Until there is a light at the end of the tunnel with tariffs and agriculture commodity prices improve, we expect capital expenditures by producers to be muted,” says Michael Romanowski, president, Farm Credit Leasing Services Corp.

“Within the U.S. the positive trends continue. GDP and workforce growth along with a reasonably low cost of money are just some of the positive indicators,” states Harry Kaplun, president, Specialty Finance, Frost Bank.

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