ELFA Equipment Leasing & Finance -Nov/Dec 2012 : Page 20

W hAT’s The ouTLook for the U.S. economy and the equipment fi nance industry as 2012 comes to an end? According to data from the Equipment Leasing & Finance Foundation, although the U.S. economy has grown at an anemic pace in 2012, investment in equipment and soft ware has continued to be a driver of growth in an otherwise subdued economy. Th e Foundation issued the 2012 Equipment Leasing & Finance U.S. Economic Outlook in December 2011 and has updated its 2012 forecast on a quarterly basis. Each Outlook report forecasts equipment investment and capital spending in the United States and evaluates the eff ects of various related and external factors in play currently and into the foreseeable future. Projections in the fourth-quarter 2012 report released in October included: ● Th e U.S. economy slowed in Q2 2012 to an annualized growth rate of 1.3%, down from 2% in Q1 2012. Real GDP growth was holding at 2.2%, and infl ation expectations dropped from 2.3% to 2.1%. ● Projected growth in equipment and soft ware investment for 2012 was 6.7%, down from the 2011 growth rate of 11%. ● Growth in equipment and soft ware investment slowed to an annualized rate of 4.8% in the second quarter from 5.4% in Q1. A slowdown in durable goods shipments indicated that equipment investment continued to lose momentum in Q3, but was expected to remain positive—albeit at a decelerated pace compared to 2011—through the rest of 2012. ● Projections for equipment investment included: • Agriculture equipment investment was expected to decline by 5–10%. • Computer and soft ware equipment investment were projected to grow at a relatively slow pace of 1–3%. • Construction equipment investment was projected to continue to grow at a strong pace (15% plus) as the housing market rebounds. • Industrial equipment investment was expected to grow at a moderate clip of 5–9%. • Medical equipment was projected to grow, but at a slow pace of 1–2%. • Growth in transportation equipment investment was expected to moderate, but stay above 15% over the next three to six months. ● Looking ahead to 2013, natural cyclical forces—particularly housing—were expected to gain more traction and drive growth. However, some fi scal tightening was expected to counterbalance these positive trends. Th e revised projection for 2013 growth in equipment and soft ware investment was 4.5%, down from the original forecast of 8%. ● Credit market conditions remained in fl ux and highly reactive to Federal Reserve policy and events in Europe. Tensions in global credit markets were expected to ease somewhat, and U.S. interest rates were expected to marginally increase in 2013 as the “fl ight to quality” trend slowly unwinds. Th e Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economics and public policy consulting fi rm Keybridge Research. Th e forecast provides a three-to six-month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. Foundation report shows growth in equipment and software investment decelerating compared to 2011 20 NOVEMBER/DECEMBER 2012 EquipmEnt LEasing & FinancE magazinE VioLet kAiPA / shutterstock

Taking the Pulse of the Economy at Year-End

WHAT’S THE OUTLOOK for the U.S. economy and the equipment finance industry as 2012 comes to an end? According to data from the Equipment Leasing & Finance Foundation, although the U.S. economy has grown at an anemic pace in 2012, investment in equipment and software has continued to be a driver of growth in an otherwise subdued economy.<br /> <br /> The Foundation issued the 2012 Equipment Leasing & Finance U.S. Economic Outlook in December 2011 and has updated its 2012 forecast on a quarterly basis. Each Outlook report forecasts equipment investment and capital spending in the United States and evaluates the effects of various related and external factors in play currently and into the foreseeable future. Projections in the fourth-quarter 2012 report released in October included: <br /> <br /> * The U.S. economy slowed in Q2 2012 to an annualized growth rate of 1.3%, down from 2% in Q1 2012. Real GDP growth was holding at 2.2%, and inflation expectations dropped from 2.3% to 2.1%.<br /> <br /> * Projected growth in equipment and software investment for 2012 was 6.7%, down from the 2011 growth rate of 11%.<br /> <br /> * Growth in equipment and software investment slowed to an annualized rate of 4.8% in the second quarter from 5.4% in Q1. A slowdown in durable goods shipments indicated that equipment investment continued to lose momentum in Q3, but was expected to remain positive—albeit at a decelerated pace compared to 2011—through the rest of 2012.<br /> <br /> * Projections for equipment investment included:<br /> <br /> * Agriculture equipment investment was expected to decline by 5–10%.<br /> <br /> * Computer and software equipment investment were projected to grow at a relatively slow pace of 1–3%.<br /> <br /> * Construction equipment investment was projected to continue to grow at a strong pace (15% plus) as the housing market rebounds.<br /> <br /> * Industrial equipment investment was expected to grow at a moderate clip of 5–9%.<br /> <br /> * Medical equipment was projected to grow, but at a slow pace of 1–2%.<br /> <br /> * Growth in transportation equipment investment was expected to moderate, but stay above 15% over the next three to six months.<br /> <br /> * Looking ahead to 2013, natural cyclical forces—particularly housing—were expected to gain more traction and drive growth. However, some fiscal tightening was expected to counterbalance these positive trends. The revised projection for 2013 growth in equipment and software investment was 4.5%, down from the original forecast of 8%.<br /> <br /> * Credit market conditions remained in flux and highly reactive to Federal Reserve policy and events in Europe. Tensions in global credit markets were expected to ease somewhat, and U.S. interest rates were expected to marginally increase in 2013 as the “flight to quality” trend slowly unwinds. <br /> <br /> The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economics and public policy consulting firm Keybridge Research. The forecast provides a three- to six-month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators.<br /> <br /> Laurie Bakke<br /> President, <br /> Western Equipment Finance and Foundation Trustee<br /> <br /> Throughout 2012, much of our industry has enjoyed significant double-digit growth and unprecedented portfolio performance. With a focus on building portfolios, competition within the industry has become fierce. Reminiscent of prerecession times, spreads are once again compressed and underwriting adjusted to meet short-term objectives. Remaining competitive is critical; however, maintaining a long-term focus on financial and performance objectives is paramount. We continue to concentrate on a strategic and sustainable model that produces returns capable of meeting or exceeding shareholders’ expectations.<br /> <br /> With the continued uncertainty in the political and economic environment, our focus remains on risk management to maintain a proactive position in the event decisions negatively impact equipment investment and portfolio performance. We look forward to a rewarding 2013 with moderate double-digit growth and strong portfolio performance, although not producing levels achieved in 2012. <br /> <br /> David T. Schaefer, CLP<br /> Chief Executive Officer, <br /> Orion First Financial, LLC<br /> <br /> Now that we are nearing the end of 2012, it’s a good time to ponder this year and consider where we are headed in 2013. This last year was a good year for year-over-year growth, but considering where our industry was in 2010 and 2011, our results appear much better than they really have been. A significant amount of recent demand can be contributed to the need to replace equipment, not expansion. Next year’s growth rate will be a better indicator of our real growth.<br /> <br /> The replacement of aging equipment will continue to be the largest driver of our industry’s growth until businesses require additional or expansion equipment. With job creation being as low as it is, it’s hard to be bullish on growth in 2013. There will be niches that show significant growth (e.g., energy), so I am still optimistic that our industry’s growth rate will continue to be significantly greater than the overall economy. <br /> <br /> Bob Rinaldi<br /> ELFA Vice Chairman and member,<br /> Foundation Research Committee<br /> The Foundation’s Q4 2012 Equipment Leasing & Finance U.S. Economic Outlook specifically takes notice of the “two-ton gorilla in the corner,” uncertainty in the future direction of the U.S. economic system. Will we continue to lurch into a European-style social democracy or revert back to true American capitalism? All of the specific net business fixed investment by equipment types are essentially reflecting supply and demand on the minimum equipment replacement businesses feel is absolutely essential for their current business models. This forecast, along with all the preceding updates in 2012, reflect the fact that American businesses and entrepreneurs are not stretching or focused on significant expansion at this time. 2013 will be much of the same for the first six months at least, regardless of who wins the presidential election. The leasing industry, in order to get back to its historical growth rate, requires business fixed investment in equipment and software to be robust. Unfortunately, this will persist until entrepreneurs and businesses no longer feel they are under attack (tax, regulatory and rhetoric) from their government.<br /> <br /> Richard D. Gumbrecht<br /> Chief Growth Officer, <br /> EverBank Commercial Finance and Chair, Foundation Research Committee<br /> <br /> If anything, our industry is resilient. Despite global financial pressures, increased regulatory oversight, a looming “fiscal cliff” and high national unemployment, we continue to collectively expand. Go figure! We’ve seen upticks in investment in equipment and software for eight straight quarters now. As the replacement cycle slows and companies hold their breath until policies become more clear after the election, growth is expected to moderate in the near term, but still remain positive. According to the Foundation’s recent market sizing study, in the past year our industry has played a key role in filling credit needs across a broad base of companies, industries, asset types and geographies. That is good to see. Competition is as robust as ever, and going forward we should expect equipment finance companies to continue to strengthen customer relationships and support capabilities to differentiate themselves and build sustainable value.<br /> <br /> Thomas M. Jaschik<br /> President, BB&T Equipment Finance<br /> and ELFA Treasurer <br /> <br /> Coming into 2012, the equipment finance industry was optimistic about the potential for growth. After all, the industry experienced 25% growth in 2011. The first half of the year did not disappoint most market participants. New business volume was up and credit issues were virtually nonexistent. However, as mid-year approached, lingering issues put a damper on the market. These included the European debt crisis, the pending “fiscal cliff” and the upcoming presidential election. The combination of these factors has caused U.S. business to take a “wait-and-see” approach to capital investments. Where the industry goes in 2013 depends on how these factors unfold. Given the inability of our federal government to effectively deal with fiscal issues, one has to be pessimistic about a practical and timely solution. Uncertainty is likely to continue, which will not bode well for the economy as a whole or the equipment finance industry. However, if politics can be put aside and a sound fiscal policy can be established, the economy and the equipment finance industry can be on the path for an extended period of growth. <br /> <br />

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