New deals to finance equipment purchases, a proxy for U.S. capital spending, fell in November as a stable but unspectacular 2023 for business equipment leasing and finance companies neared an end.
The volume of loans, leases, and lines of credit extended to companies to buy everything from office furniture to farm machinery to software totaled $8.3 billion in November, unchanged from a year ago but down 19% from October’s $10.3 billion.
Year-to-date, cumulative new business volume, $103.6 billion, was up 4.1% compared with 2022, when the gradual rise in interest rates dampened activity.
The numbers released Thursday come from the Equipment Leasing and Finance Association (ELFA), whose MLFI-25 index tracks the activity of 25 companies representing a cross-section of the sector.
“Moving into the final month of the year, MLFI participants report mixed performance,” said ELFA President and CEO Leigh Lytle, a former Federal Reserve Bank of San Francisco vice president. “Year-to-date originations are healthy despite some softness in year-over-year and month-to-month November data.”
Lytle expects a positive final month for the industry and said, “No further rate increases by the Fed for the foreseeable future is more good news.”
Equipment lenders and lessors have contained delinquencies and charge-offs as interest rates rose this past year. In November, receivables over 30 days were 2%, up from 1.7% a year ago. Charge-offs were 0.4%, unchanged from the previous month and up from 0.3% in the year-earlier period.
However, the industry has seen a monthly decline in headcount at equipment finance companies this year, kicked off by the start of the Fed’s monetary tightening in March 2022.
2024 Expectations
Confidence in the equipment finance sector has been lagging for the better part of 16 months, according to the monthly confidence index for the equipment finance industry (MC-EFI). Tracked by a separate organization, the Equipment Leasing & Finance Foundation (ELFF), the index is a “qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives.”
“Overall, while breakout growth in equipment and software investment looks unlikely in 2024, the prospect of lower interest rates and acceptable inflation levels should keep the industry on sound footing.”
Zach Marsh
Vice president, AP Equipment Financing
The December index reading was 42.5, slightly lower than November’s 42.8. A reading of 50 or above represents a positive outlook. The index has been 50 or above only three times since September 2022.
ELFF’s economic outlook for 2024 projects real equipment and software investment growth of 2.2% next year, “slightly slower than the growth rate experienced over the last 12 months — with stronger investment activity expected in the latter half of the year.”
The foundation forecasts real GDP growth of 1.7% in 2024, compared with the recent median projection by members of the Fed Open Market Committee of 1.4%.
Zack Marsh, chair of the foundation and a senior vice president, accounting and analysis at AP Equipment Financing, said, “Overall, while breakout growth in equipment and software investment looks unlikely in 2024, the prospect of lower interest rates and acceptable inflation levels should keep the industry on sound footing.”