Following the Federal Reserve’s interest rate cuts in September, new data reveals a $10.5 billion, or 5.1% increase, in new business volume for equipment leases and loans from September to October, its largest jump since August 2023, according to the Equipment Leasing and Finance Association CapEx Finance Index: October 2024 report.
Building on last month’s impressive growth, the surge hints at a strong finish for equipment investment this quarter. In the face of increasing prices and borrowing costs, the ELFA CapEx Finance Index showcases remarkably strong activity in inflation-adjusted lending and leasing.
“The October CapEx Finance Index revealed an exceptional start to the fourth quarter for the equipment finance sector,” said Leigh Lytle, CEO and President of ELFA. “While the Federal Reserve’s 50bps rate cut provided a boost, the real story lies in the sector’s fundamental strength. Borrowers and lenders alike demonstrated resilience, with healthy credit approvals and robust balance sheets. Looking ahead, this momentum positions the sector to confidently navigate the challenges of 2025, whether it’s a slower pace of rate cuts or ongoing inflationary pressures.”
Business activity weathered inflation and high borrowing costs. Demand for business equipment withstood the worst inflationary shock in almost four decades and a surge in borrowing costs. After adjusting for inflation, new business volume hovered around $8 billion a month even as the economy underwent a historic sequence of events.
Employment growth slowed but remained positive. The 12-month change in employment edged down in October to 0.7%. Job gains in the industry have been healthy in 2024, and remained so in the latest data, a welcome sign after years of rising unemployment following the global pandemic.
Credit approvals remained steady. The percentage of credit applications approved ticked down for the second consecutive month to 75.1%. The approval rate has been hovering between 75% and 77% for a little over a year, a sign that credit conditions have not deteriorated despite elevated borrowing costs.
Lender balance sheets strengthened further. Charge-offs declined to 0.31%, their lowest level since January 2023, while the percentage of loans and leases past due by 30 days edged up slightly to 2.2% but remains near 2024 lows.
“All encouraging data points clearly demonstrate the resiliency and critical role of equipment finance to the U.S. economy,” said William C. Perry III, Executive Vice President & Group Head, Regions Equipment Finance Corporation. “As you consider further anticipated rate cut(s), capacity reshoring and the potential for 100% bonus being reinstated, we expect companies to increase investments in new technology, resources and production equipment. This should equate to increased demand for structured leasing and equipment finance products as companies look to maximize associated tax benefits. Having performed well over the past 24 months, the equipment finance sector is justly poised for growth as we head into 2025 and beyond.”
Industry Confidence: The Monthly Confidence Index from ELFA’s affiliate, the Equipment Leasing & Finance Foundation, is 67.5 in November, up from the October index of 61.8, and the highest level since August 2021.