Demand for equipment cools as finance approvals drop

Demand for equipment cooled as inventory held steady over the past six weeks as the Federal Reserve’s hawkish monetary policy continued to constrain the economy while tamping down inflation.  

Equipment production was mixed regionally in November while demand was solid, according to the Federal Reserve’s latest edition of its Beige Book, released today. The November report is based on data collected from Oct. 6 to Nov. 17 from the 12 districts represented by Federal Reserve Banks. 

Trucking firms in the area served by the Richmond Fed reported no issues in maintaining truck and trailer fleets and reported they were not facing any “significant backlogs on orders of new equipment.” 

Richmond Fed region firms also reported low underlying demand for industrial goods in tandem with a dip in freight volumes for construction materials. However, manufacturers in the San Francisco Fed region reported “solid demand for heavy machinery, capital equipment and fabricated metal products.” 

Contacts in the Dallas Fed region reported a decline in transportation equipment manufacturing output driven in part by the United Auto Workers strike. The Fed’s report follows a decline in new and unfilled orders for core capital goods in October.  

The Beige Book report follows a slowdown in new and unfilled orders for core capital goods, which declined slightly in October as the economy adjusted to higher interest rates and the long-term impact of equipment shortages. 

Core capital goods orders decline again 

Seasonally adjusted new orders for core capital goods, excluding aircraft and defense goods, clocked in at $73.8 billion in October, down 0.1% month over month following a 0.2% MoM decline in September, according to the U.S. Census Bureau’s report released Nov. 22. October new orders were up 0.6% year over year. 

Seasonally adjusted shipments for core capital goods were essentially unchanged MoM at $74.4 billion. Total October shipments increased 1.5% YoY 

Seasonally adjusted unfilled orders landed at $270.4 billion in October, down 0.2% MoM for the second consecutive month, according to the Census report. October seasonally adjusted unfilled orders dipped 1.7% YoY. 

Seasonally adjusted total inventories for core capital goods reached just over $163 billion, an increase of 0.1% MoM. October seasonally adjusted total inventories increased 3.1% YoY. 

As macroeconomic conditions continue to tighten, companies are seeking new ways to adjust following the pandemic, Brian Holland, president and chief executive of fleet lessor and asset management firm Fleet Advantage, told Equipment Finance News.  

“We’re seeing growth in our market, which is predominantly private fleets,” he said. “There’s a growing awareness and the emphasis on supply chain, and companies want better control of their distribution network.” 

Equipment finance navigates macroeconomic trends 

Equipment lenders and lessors are also approving fewer credit applications, according to the Equipment Leasing and Finance Association (ELFA). 

Credit approvals as a percentage of all decisions declined by 1.7 percentage points to 76% YoY, according to ELFA’s Monthly Leasing and Finance Index. Meanwhile, year-to-date equipment finance new business volume increased 0.7% YoY to $97.3 billion in October, according to the index. 

“All metrics continue to reflect the equipment finance industry’s stability and resilience,” Dennis Bolton, senior managing director and head of equipment finance in North America at global liquidation and restructuring firm Gordon Brothers, said. “The trends are consistent with the economic environment and market turmoil resulting from quantitative tightening, inflation, employment and supply chain disruption.”