Companies ramped up their new equipment leases compared to a year ago, reflecting continuing improvement in the US economy and their need for equipment, ranging from Canon Financial Services’ small-ticket office equipment to heavy machinery from Caterpillar.
The new business volume of 25 companies representing a cross section of the $827 billion equipment-financing sector was up $5.4 billion in February compared to a year earlier, or 15 percent, according to the Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25). February tends to see the lowest new leasing-business volume during the year, and in fact it dropped 10 percent from January, for which year-over-year growth was essentially flat. Cumulative business volume through February increased 8 percent compared to the same period last year.
“Taken together with what we hear from our customers about how well they believe their businesses are performing … the MLFI survey indicates equipment customers and financers are feeling pretty good this month,” said Gary Kempinski, general manager of GE Capital Transportation Finance’s Navistar Capital program.
William Sutton, president and CEO of ELFA, said there was strong first-quarter growth in 2010 and 2011 as companies climbed out of the recession and played catch up in terms of replacing equipment. “Now we’re seeing more stability and a leveling out of that number, and we think growth has normalized and is back to levels experienced in 2006 and 2007,” Mr. Sutton said.
Other data uncovered by the survey were more mixed. Credit approvals totaled 75.3 percent, a decrease from 76.9 percent in January, while total headcount for equipment financing companies increased by 4.3 percent. Mr. Sutton said credit approvals above 70 percent are considered strong, so ELFA has little concern on that front. And while the headcount increase at first appears significant, Mr. Sutton said, several companies in the index had large headcount drops after going through employee reorganizations early last year, creating the appearance of a spike in February.
“If you take out those companies, headcount is pretty flat right now,” Mr. Sutton said. Likewise, average charge-offs as a percentage of net receivables, a gauge of lessee financial health, has remained at a relatively low 0.4 percent or lower since December 2012.
Mr. Sutton said ELFA is generally hearing positive comments from members, who point to the returning housing market, a strong economy, moderate GDP growth and a better employment picture as positive signs. In addition, he said, severe weather conditions early in the year over much of the country likely resulted in pent up demand for new equipment that should continue to play out in coming months.
ELFA published a survey in February in which participants projected construction, oil and gas, medical equipment and transportation, including trucks, trailers and rail, to be the sectors with the greatest demand for new equipment in 2014. In March, Sutton said, mining, healthcare and manufacturing were the most active sectors.
Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) published in March and looking out four months scored 65.1, the highest level two years and an increase from the February index of 63.3. Any score over 50 is viewed as positive.
Mr. Sutton said the foundation also publishes an economic outlook that will be released in the first week of April, and it will adjust upwards its projection for 2014. “Across the board, our economists are even more positive for 2014,” he said.