Equipment Finance Industry Confidence Eases Further in November

According to the Equipment Leasing & Finance Foundation’s November Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), overall confidence in the equipment finance market is 43.7, a decrease from the October Index of 45. The ELFF has reported a decrease in the confidence index in each of the last three months.

“There continues to be uncertainty in the markets as a result of inflationary pressures, rising rates and the unknown impact of mid-term elections,” Aylin Cankardes, president of Rockwell Financial Group, said. “Due to ongoing challenges from supply chain delays, we are seeing increased demand for used equipment. Overall, our customers have been very resilient and underlying growth has been robust, so we anticipate a strong finish to 2022, particularly in the energy transition and sustainability finance sector.”

When asked to assess their business conditions over the next four months, none of the executives said they believe business conditions will improve over the next four months, unchanged from October. Meanwhile, 46.4% believe business conditions will remain the same over the next four months, down from 62.5% last month, and 53.6% believe business conditions will worsen, an increase from 37.5% in October.

“Supply chain issues look to extend into 2023, delaying equipment purchases. Higher rates are having customers consider leasing options to conserve cash flow,” Michael Romanowski, president of Farm Credit Leasing, said.

According to the index, 10.7% 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 8.3% in October, while 67.9% believe demand will “remain the same” during the same four-month time period, an increase from 66.7% last month. In addition, 21.4% believe demand will decline, down from 25% in October.

“Despite the economic headwinds and rising interest rates, there will still be decent demand as equipment that has aged due to supply chain constraints will need to be replaced,” Chris Lerma, president of AP Equipment Financing, said. “We are concerned how the rising costs of borrowing combined with a softening economy will impact some of our leveraged borrowers.”

This month, 14.3% of the respondents said they expect more access to capital to fund equipment acquisitions over the next four months, up from 4.2% in October. However, 21.4% expect “less” access to capital, up from 8.3% last month. Meanwhile, 64.3% of executives indicated they expect the “same” access to capital to fund business, a decrease from 87.5% last month.

“While our customers will pay higher interest rates due to continued policy moves by the Federal Reserve, we don’t expect spending on major capital expenditures to be negatively impacted solely by higher rates,” Bruce J. Winter, president of FSG Capital, said. “We are, however, on the lookout for slowing in certain sectors that will eventually slow down or delay spending on equipment purchases.”

When asked, 32.1% of the executives reported they expect to hire more employees over the next four months, up from 29.2% in October, while 64.3% expect no change in headcount over the next four months, a decrease from 66.7% last month. Additionally, 3.6% expect to hire fewer employees, down from 4.2% in October.

Only 3.6% of the leadership evaluated the current U.S. economy as “excellent,” a decrease from 8.3% last month, but 75% of the leadership evaluated the current U.S. economy as “fair,” up from 66.7% in October, and 21.4% evaluated it as “poor,” a decrease from 25% last month.

None of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, unchanged from October. Instead, 71.4% believe economic conditions in the United States will worsen over the next six months, an increase from 58.3% in October, while 28.6% believe the U.S. economy will “stay the same” over the next six months, a decrease from 41.7% last month.

In November, 28.6% of respondents indicated they believe their company will increase spending on business development activities during the next six months, up from 25% last month, while 64.3% believe there will be “no change” in business development spending, down from 70.8% in October, and 7.1% believe there will be a decrease in spending, an increase from 4.2% last month.

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