The Equipment Leasing and Finance Association's (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $650 billion equipment finance sector, showed overall new business volume for August decreased 14.5 percent when compared to the same period in 2007. However, cumulative year-to-date new business volumes show an increase of 2.5 percent compared to 2007.
The MLFI-25 is the only index that reflects the volume of equipment financed in the U.S. The MLFI-25 complements other relevant economic indices, including the monthly durable goods report produced by the U.S. Department of Commerce, which reflects new orders for manufactured durable goods, and the Institute for Supply Management Index, which reports economic activity in the manufacturing sector. Together with the MLFI-25, these reports provide a complete picture of the status of productive assets in the U.S. economy: equipment produced, acquired and financed.
According to the August data, month-over-month new business volume declined by 22.1 percent from $6.8 billion to $5.3 billion. Receivables in the less-than-30-days category, a measure of non-delinquent accounts, were 96.9 percent, unchanged from the prior month and actually, an improvement over the same period last year. However, charge-offs increased slightly to 0.88 percent, still high when compared to year-over-year data.
Credit standards appear to have remained relatively stable compared to the previous month, with credit approval ratios increasing 0.1 percent to 74.1 percent. Total headcount for equipment finance companies showed a very slight decline in the July-August period.
"The big news here is the 14.5 percent drop in August new business originations," said William (Bill) Verhelle, ELFA Chairman and CEO of First American Equipment Finance in Fairport, NY, and a participant in the monthly survey.
"For nearly a year now, everyone has been watching for signs that the global credit crisis is spreading into the general economy," said Verhelle. Specific equipment finance segments such as transportation, construction and some areas of the small-ticket market have experienced problems during the past several months. Until August, however, the broader equipment finance industry had yet to see a slowdown. This 14.5 percent August decline in equipment lease and loan originations (compared to the same month in 2007) may be the first objective data reflecting a broad capital equipment slowdown in the U.S.," said Verhelle.
"The decline in new business volume is likely a combination of capital constraints among lessors and lenders, enhanced underwriting standards and risk based pricing, and some diminishment of demand," said ELFA President Kenneth E. Bentsen, Jr. "Beyond the effects of market disruption, portfolio credit quality remained strong in August," said Bentsen.
The MLFI-25 measures monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies representing a cross section of the equipment finance sector, including small ticket, middle-market, large ticket, bank, captive and independent leasing and finance companies. Based on hard survey data, the responses mirror the economic activity of the broader equipment finance sector and current business conditions nationally.
The ELFA produces the MLFI-25 survey to help member organizations achieve competitive advantage by providing them with leading-edge research and benchmarking information to support strategic business decision making.
The MLFI-25 is a barometer of the trends in U.S. capital equipment investment. Five components are included in the survey: new business volume (originations), aging of receivables, charge-offs, credit approval ratios, (approved vs. submitted) and headcount for the equipment finance business.
Results of each MLFI-25 are posted on the ELFA website and in ELT, the Magazine of Equipment Leasing and Finance. To access ELFA's comprehensive industry information, please visit http://www.elfaonline.org/ind/research/
Participants in the ELFA MLFI-25:
- ADP Credit Corporation
- Bank of America
- Bank of the West
- Canon Financial Services
- Caterpillar Financial Services Corporation
- De Lage Landen Financial Services
- Fifth Third Bank
- First American Equipment Finance
- Hitachi Credit America
- HP Financial Services
- Irwin Financial
- John Deere Credit Corporation
- Key Equipment Finance
- Marlin Leasing Corporation
- National City Commercial Corp.
- RBS Asset Finance
- Regions Equipment Finance
- Siemens Financial Services
- US Bancorp
- US Express Leasing
- Verizon Capital Corp
- Volvo Financial Services
- Wells Fargo Equipment Finance