Events and changes have a way of reverberating through Wall Street and Main Street. You may have noticed that this is an election year (insert smirk) and the markets will react whether President Biden wins another four-year hitch or former President Trump is returned to the oval office.
Is there a correlation between who becomes the next president and the fortunes of the equipment leasing universe? Perhaps. Perception outweighs reality, and confidence from either consumers or the business sector will be driven by the belief that interest rates and inflation will be better or worse, depending upon which administration takes office.
Ultimately, the Federal Reserve and its efforts to curtail inflation via interest rates will be a major player and driver. Economic growth and a solid labor market ordinarily are marks of increased consumer confidence, but the relentless rate of inflation—while down from its June 2022 high of 9.06%–has prompted the Fed to hold the line at 5.5% on its key interest rate. The Fed now projects it will have just one rate cut in 2024, down from the earlier projection of three reductions. Inflation has improved, but it will take more positive trailing data to prompt the Fed to budge.
Much closer to home, we’ve surveyed our dealer panel on these and other trends that will bear watching as 2024 draws to a close.
Clients clutching onto their gear is also a factor in the eyes of David Carson, president of Plus Inc. in Greenville, South Carolina. The machines are simply getting less use on customer floors, and some clients would rather buy than lease, because the units are lasting longer.
“Some of these customers just aren’t seeing an advantage to making the upgrade,” he added.
Service Dollars
The world of managed IT offers dealers a chance to secure monthly recurring revenue. Doug Pitassi, The president of Pacific Office Automation in Beaverton, Oregon, sees the degree of customers financing the service component growing in the future.
“The upfront service commitment in the IT space is definitely a trend,” he said. “I see a lot more clients financing their service commitment alongside the five-year contracts.”
The aftermath of the pandemic triggered a three-year trend of clients refinancing their existing equipment as opposed to upgrading to new technology, notes Josh Salkin, a partner with EDGE Business Systems in suburban Atlanta. With so many customers taking a wait-and-see approach and employing gear that’s 5-8 years old, he feels it’s bound to trigger a period of new equipment installations.
“Regarding lease rates, until the Fed decides to make some reductions to rates we’ll continue to operate in a state of higher APR which puts more pressure on the monthly payment and deal margins,” he noted.
The uncertainty over interest rates over the next 12 months has many clients wondering and waiting, says Mason Smith, president and CEO of MTS Office Systems in Greenville, South Carolina. The hope is that once the rates recede, it will bring with it other, more positive developments.
“Hopefully some of the other high costs will flatten out, such as freight, shipping and equipment,” he said.
