Equipment finance decline flattening

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The Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $650 billion equipment finance sector, showed overall new business volume for July declined by 35.1 percent when compared to the same period in 2008. Month-to-month new business volume actually decreased 7.7 percent from June to July, from $5.2 billion to $4.8 billion.

ELFA says the MLFI-25 is the only index that reflects capex, or the volume of commercial equipment financed in the United States. The MLFI-25 is a financial indicator that complements other relevant economic indices, including the monthly durable goods report prepared by the U.S. Department of Commerce, which reflects new orders for manufactured durable goods; and the Institute for Supply Management Index, which reports economic activity in the manufacturing sector. Together with the MLFI-25, these reports provide a complete picture of the status of productive assets in the U.S. economy: equipment produced, acquired and financed.

The MLFI-25 reported receivables over 30 days decreased to 3.9 percent as compared to 4.1 percent in June. This represents the first consecutive month decrease since June 2008. On a year-over-year basis, receivables over 30 days increased by 18.2 percent. Charge-offs decreased sharply to 1.67 percent from 2.44 percent in the prior month but rose by 56.1 percent compared to July 2008. Credit approvals remained flat at 65.5 percent and declined from 73.3 percent in July 2008. Total headcount for equipment finance companies decreased slightly in the June-July period.

Forty-seven percent of participant companies reported that fewer transactions were submitted for approval during the month, due to tightening underwriting standards and lower demand. In a separate study, the Federal Reserve Board July 2009 Senior Loan Officer Opinion Survey reported weaker demand for commercial and industrial loans. Forty-five percent of respondents reported weaker demand for large firms, and 55 percent reported weaker demand for small firms.

“The July numbers seem to indicate that the steep decline in new business volume and portfolio deterioration may have crested in April,” says Kenneth E. Bentsen Jr., ELFA president. “While still declining on an annual basis, the trajectory of the decline is flattening, indicating possibly a sign of recovery in the capital equipment finance business.”

The Equipment Leasing & Finance Foundation’s Monthly Confidence Index for August rose to 54.9 up from 49.2 in July. This somewhat more optimistic outlook reflects respondents’ belief that business conditions will not worsen over the coming quarter. For more detailed information on the Monthly Confidence Index, go to www.LeaseFoundation.org.