Covid-19 is wreaking havoc on equipment leasing and future investment, according to the Equipment Leasing & Financing Foundation. The group is projecting investment to decrease between -8.6 and -13.5 percent for the remainder of the year, compared to projections of U.S. economic contraction between -5.0 and -9.4 percent. The numbers appear in the Foundation’s Q2 update to its 2020 Equipment Leasing & Finance U.S. Economic Outlook.
In addition, confidence in April plummeted to a historic low of 22.3, compared to 46.0 in March. The Foundation’s Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) assesses both prevailing business conditions and expectations for the future.
The Outlook suggests that conditions will improve in the third and fourth quarters, which should produce strong annualized growth rates after a large contraction during the first half of the year. Nonetheless, the economy will be smaller at the end of 2020 than it was at the start, according to the Foundation’s estimation.
The report portrays in detail how 2020 is likely to be one of the most challenging years in history for the U.S. economy and for our industry,” said Scott Thacker, Foundation chair and CEO of Ivory Consulting Corp., in a prepared statement. “Going into 2020, equipment and software investment was already at its weakest growth level since 2016, and now is expected to plunge to nearly unprecedented low levels of growth. There are a few equipment verticals, however, such as medical devices and computers, that are expected to be more resilient.”
The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor tracks these verticals. Construction-related verticals mentioned in the report include:
- Construction machinery investment growth is expected to remain negative.
- Materials handling equipment investment is likely to remain negative.
- Mining and oilfield machinery investment growth is likely to severely contract.
- Trucks investment growth should further weaken and may enter contraction territory.
According to the Momentum report, investment in construction machinery dropped at a 38 percent annualized rate in Q4 2019 and fell 7.6 percent year-over-year. The report suggests continued negative growth in construction machinery investment over the next two quarters.
On the mining and oilfield machinery side, the Momentum report saw investment in machinery up 22 percent in Q4 2019, up 0.8 percent over the previous year. The Momentum Index, however, decreased in April to 80, the lowest level in a year. In March, the Brent Crude Oil Spot Price plummeted 63 percent, the sharpest decline on record, and the S&P 500 Steel Index pulled back 19 percent. The Index and preponderance of economic data suggest severe contraction in mining and oilfield investment over the next six months.
Confidence in equipment financing
The April MCI-EFI suggests business conditions will worsen for leasing and financing firms over the next four months, with 93 percent responding, up from 48 percent in March. Some 90 percent say demand for leases and loans to fund capital expenditures will also decline, up from 37 percent in March.
When asked to evaluate the nation’s economy over the next six months, 65 percent of respondents expect it to worsen, up from 48 percent in March.
Source: Equipment Leasing & Finance Foundation
