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07 15 2015

Equipent Leasing and Financing Confidence at 4 Year High

07 15 2015

Monthly Confidence Index Reaches 4-Year High

The Equipment Leasing and Finance Foundation released its March 2015 Monthly Confidence Index for the Equipment Finance Industry, stating market confidence in the equipment leasing industry has climbed to hit 72.1 percent, marking a 4-year high. This represents a 5.8 percent increase over February’s confidence index. The Foundation releases this once-a-month survey of business executives of the $903 billion equipment finance sector to provide a qualitative assessment of the current industry climate in addition to future expectations.

High confidence in a capital market like equipment finance historically indicates consumers and businesses are likely to acquire more consumer goods, equipment and durables. These new purchases and acquisitions allow owners to grow their businesses more quickly and efficiently, which affects the economy as a whole.

Index specifics

In February, only 30.3 percent of business executives were optimistic about future business conditions, while in March 50 percent of those same respondents believed business conditions will improve in the next 4 months. Not a single respondent thought business conditions would deteriorate in the coming months.

When it came to leases and loans to fund capital expenditures, confidence levels dipped slightly from 42.4 percent to 41.7 percent, while 58.3 percent of respondents believed conditions will stay the same, an increase of almost 7 percentage points. None of the respondents thought capex rates will decrease.

Only a quarter of respondents believe they will have access to the necessary capital to invest in funding equipment acquisitions in the coming months, marking a 2.3 point decline from February. Three quarters expect no change in their ability to access capital. Even though none of the respondents indicated they would experience a decrease in access to capital, the decline in those who believe they will have access mean some executives remain uncertain about how they can obtain equipment leasing.

Executives intend to hire more employees in the coming months by almost 30 points more than in February, with the number surging from 39.4 percent to 70.8 percent.

Overall, 12.5 percent of business executives think the current U.S. economy is in excellent shape, while 87.5 percent view it as fair.

“Equipment financing demand is continuing although there are increasing clouds of uncertainty,” stated respondent and Frost Equipment Leasing and Finance President Harry Kaplun, according to The Foundation. “In particular the full impact of lower oil prices has not been seen. This favorable event for consumers has a mixed impact commercially.”

Growing in 2015

In addition to the Monthly Confidence Index, the Foundation released their 2015 Equipment Leasing and Finance U.S. Economic Outlook, which forecasts a 5 percent growth rate for the industry in 2015. While the Foundation revised this number down from their initial 6 percent forecast, the industry is still poised for a good year of economic expansion.

The likelihood of the Federal Reserve raising interest rates for the first time in 6 years may cause some instability in the industry, although the rate hike might propel business owners to finalize deals and lock down investments at a lower rate while they still can.

In addition, the strong dollar continues to be a drag on exports. Low oil prices offer benefits to the U.S. economy as a whole, although the depressed prices do have a negative impact on the energy industry, which can trigger ripples in other sectors.

While the Foundation expects 5-percent growth in the equipment financing industry, they predict the overall U.S. Gross Domestic Product to grow by 3.1 percent. If this trend proves accurate, it will mark the first time the U.S. economy has grown by 3 percent of more since 2005. The International Monetary Fund also forecasts similar numbers in its semi-annual World Ecominic Outlook, projecting U.S. GDP growth at 3.1 percent.

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