Market Talk

Last month, we reported on the Equipment Leasing and Finance Associations’ monthly activity report. It was pretty ugly. The group posted their February report this morning, and while it didn’t match January’s dire numbers, it still showed regression.

“New business volume for February declined three percent when compared to the same period in 2009,” the group reports. On a monthly basis, volume was down 6%, which apparently is better than the four-year average for February to January of a drop of 17%.

But the group also reported a “noticeable” rise in delinquencies (albeit the numbers were skewed by one outlier respondent, the group says.) And credit approvals fell to 69% (still up from 65%) a year ago. “Almost half of participating organizations reported submitting fewer transactions for approval during the month,” the group said.

For anybody expecting some surge in capital spending that’s going to jump start the economy, well, it’s fine to hope that, but think twice before placing your bets on it. From the release:

“The fact that February new business volume is down compared to February 2009′s anemic numbers tells you that we still have a long way to go in the economic recovery,” said Thomas Jaschik, president, BB&T Equipment Finance located in Towson, MD.  “Businesses continue to lack the confidence to make substantial investments in capital equipment. The increase in delinquencies and charge-offs from January to February has a seasonal factor associated with it, but is not a trend you like to see given the run up in these two items in 2009.”

One of the big pegs of the V-shapers is this idea that capital expenditures will fuel the expansion. The consumer is not spending, not in any great amounts anyway, government spending takes one only so far. The housing and auto markets may not be about to go into the cart anymore, but they’re not exactly healthy sectors. Something else is going to have to drive the expansion.

It’ll get buried beneath stories about home sales and Bernanke’s testimony, but this notion about capex took a hit today, too.

The Equipment Leasing and Finance Association reported that its monthly activity index fell 24% in January from a year ago:

The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $518 billion equipment finance sector, showed overall new business volume for January declined by 24 percent when compared to the same period in 2009.

We will point out, once again, that this time last year was just about the nadir for everything, so the fact that equipment financing is down this sharply from a year ago should be an eye-opener. And the source of that weakness is the one source that no amount of government largesse can engineer: demand.

“According to supplemental data, this downturn in new business volume is attributable, in large part, to a continued decline in customer demand for financing,” the group wrote. Later in the release, they make it clear also, that it’s not a lack of available financing: “Credit approvals increased to 71 percent in January, up from 65.2 percent in the same period in the previous year. A majority of participant companies reported that fewer transactions were submitted for approval during the month.”

“There still isn’t an awful lot of confidence that businesses are in a mode to spend on equipment acquisitions,” said Ralph Petta, interim president of the Washington-based leasing and financing association. “There just doesn’t seem to be a lot of demand.”