Equipment finance industry confidence declined slightly in December as steady interest rates kept financing markets tight.
Equipment finance industry confidence landed at 42.5 in December, down from 42.8 in November and 45.9 in December 2022, according to the Monthly Confidence Index published by the Equipment Leasing and Finance Foundation (ELFF).The December reading marks the end of a year of ebbs and flows, with interest rates modulating U.S. economic sentiment, according to the report.
ELFF is part of the Equipment Leasing and Finance Association (ELFA).
The number of equipment finance leaders who rated the economy as excellent reached zero last month, down from 3.7% of respondents in November, according to the index. Still, 85.2% of respondents view the economy as fair, up 3.7 percentage points month over month. The other 14.8% of respondents viewed the economy as poor, flat compared with the previous month.
Current macroeconomic conditions also led some lenders to cease funding or tighten standards, Kit West, business development director/broker relations at equipment lender C.H. Brown, told Equipment Finance News.
“There are a few financial sources that have dried up or they have gotten stricter,” he said. “That’s part of the ups and downs of the industry.”
In addition to middling sentiment about the economy, more equipment finance executives are neutral on the economic outlook, with 66.7% expecting the United States economy to stay the same for the next six months, up 22.3 percentage points MoM, according to the survey. Meanwhile, 3.7% expect U.S. economic conditions to get better, flat MoM, and 29.6% expect economic conditions to worsen, down 22.3 percentage points MoM.
If the Federal Reserve cuts interest rates in 2024, economic conditions could improve or, at least, remain the same, West said.
“There’s still going to be a lot of time in between and there’s still going to be some macro and micro changes in the economy that’s going to affect that, but we’re going to do whatever we can to keep our people in their trucks and making a living,” West said.
A rate decline should contribute to a soft economy in 2024, Mike Sheehan, president of Tandem Finance, told EFN.
“Like many in our industry, 2023 proved to have its unique challenges, ranging from managing originations in a rapidly rising rate environment through continued maintenance of the existing portfolio in a softening macro economy,” he said. “We continue to anticipate a soft economy heading into 2024 with no further Fed rate increases and eventually Fed moves to reduce the overall rate environment.”