The Equipment Leasing & Finance Foundation released the March 2024 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by executives from the $1 trillion equipment finance sector. Overall, confidence in the equipment finance market increased for the third consecutive month to 55.2 in March, up from the February index of 51.7 and the highest level since April 2022.
“Supply chain and demand seemed to have caught up to each other, we are finally seeing equipment ordered and delivered in real time,” survey respondent Keith Smith, president of equipment and franchise finance at Star Hill Financial, said. “This has increased the overall activity in the equipment funding space. My biggest concern is the volatility the financial markets, specifically the health of mid-market/regional banks. Historically these institutions have been the backbone of funding in the equipment finance industry, and right now even the deposit-healthy institutions are slowing their lending due to regulatory concerns.”
When asked to assess their business conditions over the next four months, 19.4% of the executives said they believe business conditions will improve over the next four months, an increase from 10.7% in February, while 77.4% believe business conditions will remain the same over the next four months, down from 82.1% last month, and 3.2% believe business conditions will worsen, a decrease from 7.1% in February.
This month, 25.8% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, up from 7.1% in February, while 71% believe demand will “remain the same” during the same four-month time period, down from 78.6% last month, and 3.2% believe demand will decline, a decrease from 14.3% in February.
According to the survey, 16.1% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 14.3% in February, while 74.2% of executives indicated they expect the “same” access to capital to fund business, down from 75% last month, and 9.7% expect “less” access to capital, down from 10.7% last month.
When asked, 19.4% of the executives reported they expect to hire more employees over the next four months, a decrease from 21.4% in February, while 67.7% expect no change in headcount over the next four months, down from 71.4% last month, and 12.9% expect to hire fewer employees, up from 7.1% in February.
None of the leadership evaluated the current U.S. economy as “excellent,” down from 3.6% last month. The majority of respondents (93.6%) evaluated the current U.S. economy as “fair,” up from 89.3% in February, and 6.5% evaluated it as “poor,” down from 7.1% last month.
This month, 25.8% of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, up from 17.9% in February, while 54.8% believe the U.S. economy will “stay the same” over the next six months, a decrease from 67.9% last month, and 19.4% believe economic conditions in the U.S. will worsen over the next six months, an increase from 14.3% last month.
In March, 22.6% of respondents indicated they believe their company will increase spending on business development activities during the next six months, an increase from 21.4% in February, while 64.5% believe there will be “no change” in business development spending, down from 67.9% in February. 12.9% believe there will be a decrease in spending, up from 10.7% last month.
Survey Comments from Industry Executive Leadership
Bank, Small Ticket
“The borrowers that have navigated through the uncertain economic conditions and higher rates should emerge even stronger as the economy strengthens,” Charles Jones, senior vice president of 1st Equipment Finance, said.
“I continue to think that 2024 will be a solid growth year for Wintrust Specialty Finance. The year has started off strong with new business originations at double-digit increases over the same period in 2023. Application volume continues to be strong while approval rates are lower due to lower credit quality we are seeing in the market. Portfolio performance remains heightened from recent years and still performing favorably to historic averages. It is important to remain focused on quality and portfolio performance as we wade our way through the transition in the economy,” David Normandin, president and CEO of Wintrust Specialty Finance, said.
Bank, Middle Ticket
“The normalization of income in the grains and oilseeds sector of production agriculture has the potential to increase demand for financing. It will also increase credit risk, albeit from exceptionally strong levels,” Jason Lueders, president of Farm Credit Leasing, said.
Captive, Small Ticket
“Inventories are returning to pre-COVID levels and end users need to replace older equipment they were forced to keep in service. A stabilizing rate environment and an election coming up could make 2024 a very good year,” Jim DeFrank, executive vice president and chief operating officer of Isuzu Finance of America, said.
Independent, Large Ticket
“I expect conditions to remain stable for the balance of the year due to the upcoming election and the anticipation for interest rates to decrease,” Jonathan Albin, chief operating officer of Nexseer Capital, said.
Independent, Small Ticket
“The net jobs growth is now relatively weak and there are fewer job openings. The Fed may have, or is near, achieving a ‘soft’ landing with the economy,” James D. Jenks, CEO of Global Finance and Leasing Services, said.
