Full Steam Ahead ? By The Way, Where Are We Going?
By Robert J. Rinaldi, Senior Vice President CSI LeasingBob Rinaldi?s Look at 2013 for World Leasing News
When Sudhir Amembal asked me to pen some of my thoughts about my views for 2013, he also asked me to list one ?hot topic?.? In past years, that was usually not a challenge, even during the worst of 2008 and 2009. Things generally sucked (that?s a technical term) but the direction for next 8-12 months ahead was fairly clear. Additionally, if there was a hot topic it was clearly identifiable and singular rather than plural.? But this time? Well this time is different.? Very different indeed; at least in my mind it is. The outlook for 2013 is murky at best and dire at worst.? As for the hot topic?? Um ? maybe it?s ? Then again ? OMG!? LOL!? Like the proverbial kid in a candy store!
Any discussion about the prospects for the equipment leasing and finance industry has to begin with Net Business Fixed Investment (CapX) regardless what country we are talking about.? Net business fixed investment is generally considered the amount commercial entities spend on capital equipment.? Over the past decade, one must also add software to this definition of net business investment since an increasing percentage of the total annual commercial business spend is made up of software (in the traditional sense or via the Cloud). Barring any exogenous events or shocks and unusual regulatory regimes, net business fixed investment trends would correlate closely with the new business leasing/finance volume. ?After all, we cannot finance equipment if our customers don?t commit to the incremental investment expense (regardless via Capx or OpX).
The other day, I had Bloomberg TV in a minimized window on my Mac desktop while wading through the morning?s email. ?I noticed a chart on CapX in the window.? I quickly enlarged it and watched as the commentator walked through the other macroeconomic metrics that correlated closely with net business investment. The chart analyzed the correlations, starting in1999. The guest went on to show how close the correlation was between both the annual GDP growth rate and payrolls with net annual growth rate of net business fixed investment.? It obviously makes sense and we all probably would have guessed the same if asked about it but seeing the correlation over more than a decade just really hit home, especially since his latest data showed a marked downturn in CapX while GDP and payrolls hadn?t started to downturn yet ? a less than desirable sign. So why is this important?? Well, as I said earlier, you can?t project new business equipment leasing/finance volume without first projecting net business fixed investment. Based upon the above correlations, you can, by extension, restate my correlation between net business fixed investment and volume as, ?you can?t project new business equipment leasing/finance volume without first projecting the coming year?s GDP growth rate or Payroll trend.?
Okay, that being said, what factors determine GDP growth and unemployment rate?? This is where things get really confusing and, to be frank, downright dicey for us. Never before in my 30 years or so in business has the federal government, banking regimes and accounting bureaus played such a pivotal role in influencing the direction of GDP growth and the ?real? unemployment rate ? all at the same time. ?The distinction of the term ?real? has to do with both the reported unemployment rate and the job participation rate. ?We in the American business world have had to fight dragons before, but usually one at a time ? a fair fight. This isn?t a fair fight anymore. ?If anyone has ever watched the theatrics of big time wrestling at least once, you will recall the tag team match when the bad guys knock out one of the good guys and the referee to boot. ?The bad guys then proceed to pummel the lone good guy! That is how American business owners feel right about now. ?Forgive me for devolving into Big Time wrestling but hey, I am from Pittsburgh and it is real!
Okay, so why the segue into the part about ?how business owners feel?? ?You see, that is the crux of the issue here ? feelings, or if you prefer, ?confidence.?? GDP has a great deal to do with confidence. ?Consumer and business owner confidence is the harbinger of their future actions and effects in the market. As reported on Dec. 11, 2012 in Bloomberg.com by Carlos Torres, ?The?National Federation of Independent Business?s?optimism index?decreased 5.6 points to 87.5, the lowest reading since March 2010, from 93.1 in October. ?It was the biggest drop in monthly records, going back to 1986 as 8 of the measure?s 10 components fell. ?To put this into perspective, last month?s drop exceeded the 5.4-point decrease seen in October 2008, in the aftermath of the collapse of Lehman Brothers Holdings Inc., and the 5.2-point fall in September 2001 following the terrorist attacks in the U.S. ?The NFIB report was based on a survey of 733 small-business owners through Nov. 30. ?Small companies represent more than 99 percent of all U.S. employers, according to the U.S. Small Business Administration. ?A small business is defined as ?an independent enterprise with no more than 500 employees?.
Now, to be fair, some would say the NFIB is biased to the conservative side of the political and economic spectrum. ?To that I say, ?Duh! ?Of course they are, since business owners are playing with their own money and not someone else?s.?
This isn?t a Monopoly game to them. ?The less business owners have left after tax, the less they have to invest in their business (CapX and people).? The outcome of this past Presidential election portends that they will have less after tax income due to rising rates, fees, regulatory expenses, and the new taxes and fees within Obamacare that will start to bite Jan.1, 2013. ?Hey most people who know me know that I am an optimist. ?I am sorry to be so bleak but in short, my answer to the industry?s 2013 prospects is less than optimistic. ?We will continue at the trend in the second half of 2012. ?Businesses will replace equipment due to attrition but will not likely expand or take big risks on new prospective projects. ?As further corroboration, I would direct you to the Equipment Leasing and Finance Foundation?s quarterly Economic Outlook produced for the Foundation by Keybridge Research. This is a valuable tool to all industry players and is free of charge from the Foundation Website.? http://www.leasefoundation.org/IndRsrcs/EO/. The Economic Outlook forecasts net business fixed investments in most of the major asset classes that we finance and has become the most downloaded Foundation publication every quarter. In addition, Keybridge produces the annual forecast and 2013 is due out soon.
As for the hot topic, well I think I addressed that somewhat with ?dragons and tag team wrestling?.? I cannot pick one but if I were to rank a few I would have to say, Basel III and the Dodd Frank implementation, vilification of the millionaire business people (defined by Al Gore as a person who makes $250,000 a year for 4 years), and Lease Accounting changes, in that order.
Enough, I need a drink!
?
Source: http://www.worldleasingnews.com/the-year-ahead/full-steam-ahead-by-the-way-where-are-we-going/
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