Equipment confidence level continues upward swing
Equipment leasing and finance industry confidence up for third consecutive month in January.
The Equipment Leasing & Finance Foundation just released the January 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). Designed to collect leadership data, the index reports a qualitative assessment of the prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector.
Overall, confidence in the equipment finance market rose for the third consecutive month to 59.9, an increase from the December index of 56.2.
When asked about the outlook for the future, MCI-EFI survey respondent David Normandin, CLFP, President and CEO, Wintrust Specialty Finance, said, “Demand for leasing in the segments we are involved in has remained strong with huge demand in Q4 2019. Credit quality has remained solid and pull through has been good. Unemployment remains low and we see small business customers remaining optimistic.”
When asked to assess their business conditions over the next four months, 14.8 percent of executives responding said they believe business conditions will improve over the next four months, up from 10.3 percent in December; 81.5 percent of respondents believe business conditions will remain the same over the next four months, a decrease from 82.8 percent the previous month. Just 3.7 percent believe business conditions will worsen, down from 6.9 percent in December.
Just over 11 percent (11.1) of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 10 percent in December. Most (85.2 percent) believe demand will “remain the same” during the same four-month time period, an increase from 76.7 percent the previous month; 3.7 percent believe demand will decline, down from 13.3 percent in December.
Similarly, 11.1 percent of the respondents expect more access to capital to fund equipment acquisitions over the next four months, a decrease from 20 percent in December, and 85.2 percent of executives indicate they expect the “same” access to capital to fund business, an increase from 80 percent last month; 3.7 percent expect “less” access to capital, up from none the previous month.
When asked, 33.3 percent of the executives report they expect to hire more employees over the next four months, an increase from 30 percent in December. 63 percent expect no change in headcount over the next four months, relatively unchanged from 63.3 percent last month. 3.7 percent expect to hire fewer employees, down from 6.7 percent the previous month.
More than one third (37 percent) of the leadership evaluate the current U.S. economy as “excellent,” up from 23.3 percent the previous month; 63 percent of the leadership evaluate the current U.S. economy as “fair,” down from 76.7 percent in December. None evaluate it as “poor,” unchanged from last month.
• Only 13.3 percent of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, 80 percent indicate they believe the U.S. economy will “stay the same” over the next six months, and 6.7 percent believe economic conditions in the U.S. will worsen over the next six months, all unchanged from December.
• In January, 48.2 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, an increase from 23.3 percent last month. 48.2 percent believe there will be “no change” in business development spending, a decrease from 73.3 percent in December. 3.7 percent believe there will be a decrease in spending, relatively unchanged from 3.3 percent last month.
January 2020 MCI-EFI Survey Comments from Industry Executive Leadership:
Independent, Large Ticket
“A strong economy, low interest rates, full employment, and tax and regulatory reform give us optimism in the near term for the equipment finance industry.” Dave Fate, President and CEO, Stonebriar Commercial Finance
Bank, Middle Ticket
“If the trade deal progresses as proclaimed, we may see some thawing in capital expenditures by farmers and agribusiness. Otherwise, the belt-tightening will remain.” Michael Romanowski, President, Farm Credit Leasing
Why an MCI-EFI?
Confidence in the U.S. economy and the capital markets is a critical driver to the equipment finance industry. Throughout history, when confidence increases, consumers and businesses are more apt to acquire more consumer goods, equipment, and durables, and invest at prevailing prices. When confidence decreases, spending and risk-taking tend to fall. Investors are said to be confident when the news about the future is good and stock prices are rising.
Who participates in the MCI-EFI?
The respondents are comprised of a wide cross-section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies. The MCI-EFI uses the same pool of 50 organization leaders to respond monthly to ensure the survey’s integrity. Since the same organizations provide the data from month to month, the results constitute a consistent barometer of the industry's confidence.
How is the MCI-EFI designed?
The survey consists of seven questions and an area for comments, asking the respondents’ opinions about the following:
1. Current business conditions
2. Expected product demand over the next four months
3. Access to capital over the next four months
4. Future employment conditions
5. Evaluation of the current U.S. economy
6. U.S. economic conditions over the next six months
7. Business development spending expectations
8. Open-ended question for comment
How may I access the MCI-EFI?
Survey results are posted on the Foundation website, https://www.leasefoundation.org/industry-resources/monthly-confidence-index/, 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.
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