ELFF confidence reports

Equipment Finance Industry Concerns Linger in May

The Equipment Leasing & Finance Foundation said the May 2011 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) showed overall, confidence in the equipment finance market is 52.6, down from the May index of 63.2, indicating lingering industry concerns over the sputtering economic recovery and uncertainties in lease accounting changes.

June 2011 Survey Results:

• When asked to assess their business conditions over the next four months, 5% of executives responding said they believe business conditions will improve, a decrease from 30% in May. 79.5% of respondents believe business conditions will remain the same, an increase from 70% in May. 15.4% of executives believe business conditions will worsen.

• 12.8% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, a decrease from 22% in May. 77% believe demand will “remain the same” during the same four-month time period, a slight decrease from 78% the previous month. 10% believe demand will decline.

• 23% of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 44% in May. 77% of survey respondents indicate they expect the “same” access to capital to fund business, up from 56% the previous month. In the last seven months’ surveys, no one responded that they expect “less” access to capital.

• When asked, 33.3% of the executives reported they expect to hire more employees over the next four months, down from 41% in May. 53.8% expect no change in headcount over the next four months, an increase from 52% last month, while 12.8% expect fewer employees, an increase from 7.0% in May.

• 66.7% of the leadership evaluate the current U.S. economy as “fair,” down from 93% who did in May. 33.3% rate it as “poor,” up from 7.0% last month.

• Five percent of survey respondents believe that U.S. economic conditions will get “better” over the next six months, down from 30% in May. 82% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, up from 63% in May. 12.8% responded that they believe economic conditions in the U.S. will worsen over the next six months, up from 7.0% who believed so last month.

• In June, 28% of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 37% in May. 69% believe there will be “no change” in business development spending, up from 56% last month, and 2.6% believe there will be a decrease in spending, down from 7.0% who believed so last month.

MCI-EFI respondents are composed 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.

The Equipment Leasing & Finance Foundation is a 501c3 non-profit organization that provides vision for the equipment leasing and finance industry through future-focused information and research. Primarily funded through donations, the Foundation is the only organization dedicated to future-oriented, in-depth, independent research for the leasing industry. Visit the Foundation online at http://www.LeaseFoundation.org.

Consumer and Business Spending to Spur Expanding U.S. Economy

A newly resilient economy is poised to expand this year at its fastest pace since 2003, thanks in part to brisk spending by consumers and businesses.

To be sure, the economy faces substantial challenges, including high foreclosure rates, rising commodity prices, strained state and local governments as well as the risk that financial tremors in Europe and geopolitical ones in Egypt could cut into growth. And despite the optimistic GDP forecasts, economists expect the unemployment rate will end the year at 8.6%—below January's 9%, but still high by historical standards.

Since late last summer, the economy appears to have strengthened considerably. The economists put the risk of a return to recession at 12%, down from 22% in September.

The headwinds to expansion appear to be subsiding. A majority of economists—32 of 46 who answered the question—say that rising commodity prices are due to supply-and-demand issues stemming from world-wide growth, not bubbles blown by monetary or fiscal policy. On average, they say oil prices would need to jump to $127 a barrel—well above current levels—to bring down growth. Meanwhile, nine of 10 say the turmoil in Egypt hasn't substantially altered their outlook.

While cuts by state and local governments are likely to subtract from growth in 2011, the economists don't expect the drag to be strong enough to derail the recovery. On average, they expect the sector to trim just 0.3 percentage point from economic growth over the year.

Having seen the global economy so far weather Europe's financial crisis, companies are no longer as worried about the risk it poses. They are also far less worried about tax and regulatory issues, as the White House has signaled a more conciliatory tone toward business.

"Every step in the last three months from the Obama administration looks like they're courting the corporate sector," said Bank of America Merrill Lynch economist Ethan Harris.

About the Survey

The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economist.

Businesses appear more confident about spending on new equipment and, more important, new hiring. Although the January employment report showed little job growth, economists have largely discounted that weakness as the result of winter weather. Business surveys paint a brighter picture; another encouraging sign is the number of applications for initial unemployment claims each week, which has dropped to its lowest level since mid 2008.

Surveys show that consumers remain deeply pessimistic but less than during the recession. However, the recent pace of retail sales suggests that consumers' attitudes are sunnier when they are at the mall than when talking to pollsters, said Chris Varvares, an economist at Macroeconomic Advisers. He reckons that although unemployment is high, people with jobs are no longer as worried that they will be next in line to be laid off. That makes them more willing to make purchases they postponed during the downturn.
At the same time, Federal Reserve data show that credit-card borrowing posted its first gain in two years at the end of 2010, indicating consumers were more willing to spend. In the fourth quarter, consumer spending on durable goods—long-lasting items like cars and washing machines—rose at a 21.6% annual rate. It was the biggest gain since the fourth-quarter 2001 spending surge that followed the Sept. 11 attacks.
"That's an indicator of a significant release of pent-up demand that we think will have staying power into 2011," Mr. Varvares said.
The economists also don't expect the Fed to raise rates any time soon. On average, they forecast inflation will remain near 2% through the end of 2011, which combined with a continued high jobless rate, likely leaves the central bank on the sidelines. Among economists who answered the question, 60% say they don't expect the Fed to raise rates this year.

U.S. Manufacturing Expected to Grow in January

Manufacturing in the U.S. probably grew in January for an 18th consecutive month as the expansion strengthened at the start of the year, economists said before a report.

The Institute for Supply Management’s factory index was little changed at 58 last month from an eight-month high of 58.5 in December. Readings greater than 50 signal growth. A separate report could show construction spending rose 0.1 percent in December.

The manufacturing index reached 60.4 in March 2010, the highest point in nearly six years, as industrial output rose and helped the economy rebound. The index bottomed out at 33.3 in December 2008, the lowest point since June 1980.

A reading of 58, while lower than the previous month, would still signal solid growth at U.S. factories. Greater consumer spending on cars, household appliances and furniture, among other goods, has given manufacturers a boost. Manufacturers actually added 136,000 jobs last year, the first annual net employment gain for the sector since 1997.

Consumer spending rose 4.4 percent in the October-December quarter, the fastest pace in four years, the Commerce Department said last week. The economy grew at a 3.2 percent annual rate in that same period. Despite manufacturing’s strength, economists don’t expect the sector will do much to reduce the nation’s 9.4 percent unemployment rate.

Also at 10 a.m., the Commerce Department will release data on construction spending. Projections in the Bloomberg survey ranged from a drop of 1.3 percent to a gain of 0.5 percent, following a 0.4 percent increase in November.