The Equipment Leasing and Finance Association (ELFA) has taken a significant step by updating the name of the Monthly Leasing and Finance Index (MLFI-25) to the CapEx Finance Index (CFI). This change is aimed at better reflecting what the index measures and its impact on the broader U.S. economy. As of November 26, 2024, this update has set in motion a series of developments that are shaping the equipment finance sector.

50bps Rate Cut: A Catalyst for Equipment Demand Surge

The recent 50bps rate cut by the Federal Reserve has sparked a remarkable surge in equipment demand. New data reveals a substantial $10.5 billion or 5.1% increase in new business volume for equipment leases and loans from September to October. This marks the largest jump since August 2023 and builds on the impressive growth seen in the previous month. The surge in equipment investment hints at a strong finish for this quarter, defying the challenges posed by increasing prices and borrowing costs.In the face of these economic headwinds, the ELFA CapEx Finance Index showcases remarkably strong activity in inflation-adjusted lending and leasing. This indicates the sector's fundamental strength and resilience in the face of adverse conditions. Borrowers and lenders alike have demonstrated their ability to navigate through these challenges, with healthy credit approvals and robust balance sheets. Looking ahead, this momentum positions the sector to confidently face the challenges of 2025, whether it's a slower pace of rate cuts or ongoing inflationary pressures.

Business Activity: Withstanding Inflation and High Borrowing Costs

Business activity has shown remarkable resilience in the face of inflation and high borrowing costs. Demand for business equipment has withstood the worst inflationary shock in almost four decades and a significant surge in borrowing costs. As the figure below illustrates, even as the economy underwent a historic sequence of events, new business volume has hovered around $8 billion a month. This stability in business activity is a testament to the strength of the equipment finance sector and its ability to support economic growth.

Employment Growth: A Steady but Positive Trend

The 12-month change in employment in the equipment finance sector edged down in October to 0.7%. While this may seem like a slowdown, job gains in the industry have been healthy in 2024, and this trend continued in the latest data. This is a welcome sign after years of rising unemployment following the global pandemic. The steady growth in employment indicates that the equipment finance sector is continuing to create jobs and contribute to economic recovery.

Credit Approvals: Steady Amidst Elevated Costs

The percentage of credit applications approved ticked down for the second consecutive month to 75.1%. However, it's important to note that the approval rate has been hovering between 75% and 77% for a little over a year. This indicates that credit conditions have not deteriorated despite the elevated borrowing costs. Lenders remain confident in the creditworthiness of borrowers and are continuing to provide financing for equipment purchases.

Lender Balance Sheets: Strengthening Further

Charge-offs declined to 0.31%, reaching their lowest level since January 2023. This is a positive sign for the health of lender balance sheets. Additionally, the percentage of loans and leases past due by 30 days edged up slightly to 2.2%, but it remains near 2024 lows. This suggests that lenders are effectively managing their loan portfolios and minimizing defaults. The strengthening of lender balance sheets provides further confidence in the stability of the equipment finance sector.

Industry Confidence: A Bright Outlook for 2025 and Beyond

The Monthly Confidence Index from ELFA's affiliate, the Equipment Leasing & Finance Foundation, reached 67.5 in November, up from the October index of 61.8. This is the highest level since August 2021, indicating a growing sense of optimism within the industry. As companies consider further anticipated rate cut(s), capacity reshoring, and the potential for 100% bonus being reinstated, they are expected to increase their investments in new technology, resources, and production equipment. This increased demand for structured leasing and equipment finance products will drive growth in the sector as we head into 2025 and beyond.

About ELFA's CFI

The CapEx Finance Index (CFI) is the only near-real-time index that reflects capex, or the volume of commercial equipment financed in the U.S. It is released monthly from Washington, D.C., one day before the U.S. Department of Commerce's durable goods report. This financial indicator complements reports like the Institute for Supply Management Index, providing a comprehensive view of productive assets in the U.S. economy—equipment produced, acquired, and financed. The CFI consists of two years of business activity data from 25 participating companies. For more details, including methodology and participants, visit www.elfaonline.org/CFI.

About ELFA

The Equipment Leasing and Finance Association (ELFA) represents financial services companies and manufacturers in the $1 trillion U.S. equipment finance sector. ELFA's 575 member companies provide essential financing that helps businesses acquire the equipment they need to operate and grow. Learn how equipment finance contributes to businesses' success, U.S. economic growth, manufacturing, and jobs at www.elfaonline.org.Follow ELFA:X: @ELFAonlineLinkedIn: https://www.linkedin.com/groups/89692/A photos accompanying this announcement are available at:https://www.globenewswire.com/NewsRoom/AttachmentNg/4ca77f7d-d792-41f7-9a6f-02511181eca6https://www.globenewswire.com/NewsRoom/AttachmentNg/9b6292f4-a57f-4c48-b218-e554c44db6ff