ELFA Confidence Eases in June
June 24, 2019 – The Equipment Leasing & Finance Association has released the June 2019 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). 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 $1 trillion equipment finance sector. Overall, confidence in the equipment finance market was 52.8, easing from the May index of 59.2.
When asked about the outlook for the future, MCI-EFI survey respondent Quentin Cote, CLFP, president, Mintaka Financial, LLC, said, “As unemployment is at record lows and employees are hard to come by, companies will rely more on capital equipment to support business growth and productivity growth from the employees they have. My concern is primarily the trade wars, and their impact on the prices of goods. This will eventually weaken the purchasing power of consumers and small businesses.”
June 2019 Survey Results:
• When asked to assess their business conditions over the next four months, 3.3% of executives responding said they believe business conditions will improve over the next four months, down from 16.1% in May. Eighty percent of respondents believe business conditions will remain the same over the next four months, an increase from 67.7% the previous month. Lastly, 16.7% believe business conditions will worsen, an increase from 16.1% in May.
• None of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, a decrease from 16.1% in May. Around 83.3% percent believe demand will “remain the same” during the same four-month time period, an increase from 77.4% the previous month, and 16.7% believe demand will decline, up from 6.5% who believed so in May.
• Next, 13.3% of the respondents expect more access to capital in order to fund equipment acquisitions over the next four months, up from 12.9% in May. Around 86.7% of executives indicate they expect the “same” access to capital to fund business, a decrease from 87.1% last month. None expect “less” access to capital, unchanged from last month.
• When asked, 30% of the executives report they expect to hire more employees over the next four months, a decrease from 41.9% in May, compared to 63.3% that expect no change in headcount over the next four months, an increase from 45.2% last month. Down from 12.9% last month, 6.7% expect to hire fewer employees.
• When asked, 40% of the leadership evaluate the current U.S. economy as “excellent,” down from 51.6% in May. Secondly, 56.7% of the leadership evaluate the current U.S. economy as “fair,” an increase from 48.4% the previous month, and 3.3% evaluate it as “poor,” up from none in May.
• According to the survey, 3.3% of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, down from 9.7% in May. Seventy percent of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, a decrease from 77.4% the previous month. And 26.7% believe economic conditions in the U.S. will worsen over the next six months, an increase from 12.9% in May.
• In June, 26.7% of respondents indicate they believe their company will increase spending on business development activities during the next six months, a decrease from 35.5% last month. Next, 73.3% believe there will be “no change” in business development spending, an increase from 64.5% in May. None believe there will be a decrease in spending, unchanged from last month.
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.
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.
Survey results are posted on the Foundation website, https://www.leasefoundation.