Equipment Finance Industry Confidence Improves in November

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 $628 billion equipment finance sector.  Overall, confidence in the equipment finance market is 57.4, up from the October index of 50.7, indicating an increase in optimism about business activity despite ongoing concerns about the global economic situation.
 
When asked about the outlook for the future, survey respondent Thomas Jaschik, President, BB&T Equipment Finance, said, “For 2011 the industry is doing surprisingly well given the lackluster U.S. economy.  The strong 2011 results for the industry can be attributed to historically low interest rates and the availability of 100 percent bonus depreciation.  Whether this momentum can be sustained in 2012 is still a question mark.”

November 2011 Survey Results:
The overall MCI-EFI is 57.4, an increase from the October index of 50.7.

•         When asked to assess their business conditions over the next four months, 18.9% of executives responding said they believe business conditions will improve over the next four months, up from 9.8% in October.  75.7% of respondents believe business conditions will remain the same over the next four months, a decrease from 80.5% in October.  2.0% of executives believe business conditions will worsen, a decrease from 9.8% in October.

•    24.3% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 17.1% in October.  70.3% believe demand will “remain the same” during the same four-month time period, up from 68.3% the previous month.  5.4% believe demand will decline, down from 14.6% who believed so in October.

•    27.0% of executives expect more access to capital to fund equipment acquisitions over the next four months, up from 12.2% in October.  73.0% of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 87.8% the previous month.  No survey respondents expect “less” access to capital, unchanged from October.

•    When asked, 16.2% of the executives reported they expect to hire more employees over the next four months, up from 14.6% in October.  75.7% expect no change in headcount over the next four months, a decrease from 78% last month, while 8.1% expect fewer employees, an increase from 7.3% in October.  

•    75.7% of the leadership evaluates the current U.S. economy as “fair,” an increase from 58.5% last month.  24.3% rate it as “poor,” down from 41.5% in October.

•    13.5% of survey respondents believe that U.S. economic conditions will get “better” over the next six months, up from 4.9% in October.  86.5% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, up from 78.0% in October.  No one responded that they believe economic conditions in the U.S. will worsen over the next six months, an improvement from 17.1% who believed so last month.  

•    In November, 32.4% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 26.8% in October.  67.6% believe there will be “no change” in business development spending, down from 68.3% last month, and no one believes there will be a decrease in spending, down from 4.9% one who believed so last month.  

November 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, Large Ticket
“Business activity remains steady despite the headline news about a potential double dip and economic head winds.” Executive, Large Ticket, Bank

Bank, Middle Ticket
“Cautious optimism on current economic conditions improving modestly over the next 6-18 months, continued pent-up demand/need to replace equipment in the near term, and a favorable interest rate climate should drive continued increases in equipment finance volume.  Housing, timber, construction, transportation, and nurseries will remain soft into the 2nd quarter of 2012.”  Russell Nelson, President, Farm Credit Leasing Services Corporation,

Independent, Small Ticket
“The industry seems to be faring better than most segments of the commercial lending markets.   We are beginning to see activity of business expansion for some of our clients.  We are also experiencing some level of a stronger cycle of equipment replacement underway.  Although there is still much uncertainty, small businesses that are profitable are beginning to move forward at a more aggressive pace than we have seen in the past six months.” Valerie Hayes Jester, President, Brandywine Capital Associates, Inc.

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, http://www.leasefoundation.org/IndRsrcs/MCI/, included in the Foundation Forecast newsletter and included in press releases.   Survey respondent demographics and additional information about the MCI are also available at the link above.

The Equipment Leasing & Finance Foundation is a 501c3 non-profit organization that provides vision for the equipment leasing and finance industry through future-focused information and research. Primarily funded through donations, the Foundation is the only organization dedicated to future-oriented, in-depth, independent research for the leasing industry. Visit the Foundation online at http://www.LeaseFoundation.org.