U.S. companies stepped up borrowing to buy equipment in March, mainly to replace aging goods rather than for expansion, as a sluggish economic recovery puts a lid on new capital spending, the Equipment Leasing and Finance Association said this week.
Companies signed up for $6.8 billion in loans, leases and lines of credit in March, 10 percent more than $6.2 billion a year earlier, and 36 percent more than February’s $5.0 billion.
Business borrowing has been growing at “recovery-like” rates for more than two years and the pace will likely be tempered without more significant economic growth. High oil prices, uncertainty in the euro zone, a seeming slowdown in China and other emerging markets, and regulatory uncertainty all continue to keep GDP growth slower. The one thing that would stimulate capital expenditure and business borrowing would be a heat-up of the economy, and right now all of these different headwinds are flying right in the face of a high rate of growth.
New business loan volume has increased by 17 percent during the first quarter, ELFA said.
With Gross Domestic Product growth stifled by these factors, increases in originations of the magnitude we have experienced during the past two to three years in a recovery mode are probably not sustainable.
ELFA is a trade association with over 550 members which reports economic activity for the $628 billion equipment finance sector, said overall credit quality measures are stable near pre-recession levels.
We will not see rates this low for much longer. It is time for us to talk about obtaining the capital you will require over the next few years.
The recent 9.0 magnitude earthquake and devastating tsunami in Japan is a shocking tragedy. The immediate impact of the earthquake and tsunami has been catastrophic. Transportation and production interruptions have caused an abrupt stop in supply chains. The constant uncertainty and damage to six nuclear plants has caused power outages all over the country. The northeast region, which was hit by the tsunami and earthquake, is home to ports, steel mills and auto and electronic manufacturers. Prior to earthquake, Japan was already experiencing a slowing economy so recent events will certainly have a negative impact for Japan in the near term.