The contentious U.S. election is creating anxiety in a lot of quarters, and now it might be causing companies to put off equipment leasing decisions, according to the September 2016 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The MCI-EFI is produced by the Equipment Leasing & Finance Foundation, a non-profit organization dedicated to the betterment of the equipment leasing and finance industry.
The MCI-EFI survey gives 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. The September confidence index in the equipment finance market is 53.8, a decrease from the August index of 54.8. Equipment finance executives cite customers’ concerns over the U.S. election in November.
“It appears U.S. companies have put their plans for growth on hold pending the outcome of the presidential election,” said Thomas Jaschik, president of BB&T Equipment Finance and a survey respondent. “Capital investment levels continue at diminished levels. As such, the equipment finance industry will experience a reduction in new business volumes as compared to the last several years.”
On the positive side, 18.8 percent of executives responding said they believe business conditions will improve over the next four months, an increase from 10 percent in August, while 62.5 percent believe business conditions will remain the same over the next four months, a decrease from 80 percent in August. However, the number who believe business conditions will worsen rose from 10 percent in August to 18.8 percent.
The outlook on demand for leases and loans to fund capital expenditures (capex) is a little better, with 28.1 percent of survey respondents expecting it to increase over the next four months, up from 13.3 percent in August. During the same period, 53.1 percent believe demand will remain the same (70 percent in August), and 18.8 percent believe demand will decline, an increase from 16.7 percent who believed so in August.
“The industry remains strong and dynamic. My concerns in the near team are for inconsistent demand levels in the small ticket marketplace caused mostly by anxiety about the presidential election, hostile world events, and a somewhat volatile stock market,” said Valerie Hayes Jester, president of Brandywine Capital Associates. “We have seen many transactions placed on hold by small and mid-size business owners due to lack of confidence. I would have expected that more than eight years past the ‘Great Recession’ we would not be dealing with a manic equipment acquisition pattern.”
None of the respondents expect more access to capital to fund equipment acquisitions over the next four months, a decrease from 13.3 percent in August. The vast majority of executives, 96.9 percent, expect the same access to capital to fund business, an increase from 80.0 percent the previous month, and 3.1 percent expect less access to capital, a decrease from 6.7 percent last month.
No one evaluated the current U.S. economy as excellent, unchanged from last month. All respondents categorized the current U.S. economy as fair. In August, 10 percent had called the economy poor. Expectations for improvement in the U.S. economy is low at 6.3 percent, although that is up from zero percent in August. Most, 75 percent, expect the economy to stay the same, and 18.8 percent see the economy worsening.
“Financial stress increasing in small business is producing increased delinquency and defaults,” said David Normandin, managing director, Commercial Finance Group, Banc of California. “The U.S. economy is the best place to be, although under stress.”
How the MCI-EFI Works
The Equipment Leasing & Finance Foundation sends the MCI-EFI survey to 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 and consistency
The survey consists of seven questions and an area for comments. The survey asks about:
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
For full survey results, visit the Equipment Leasing & Finance Foundation website at http://www.leasefoundation.org/research/mci/.
