ABC and ELFA See Different Levels of Confidence
BY Sandy Lender
The Associated Builders and Contractors (ABC) reported in September that its Construction Backlog Indicator fell sharply in August 2021 to 7.7 months, according to an ABC member survey conducted Aug. 19 to Sept. 1. The reading is down 0.8 months from July 2021. It’s down 0.3 months from August 2020.
ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels all fell modestly in August but remained above the threshold of 50, indicating expectations of growth going into 2022.
“Both contractor backlog and confidence have begun to fade,” ABC Chief Economist Anirban Basu said. “Higher materials prices and labor costs have conspired to put more projects on hold. In many instances, expanding costs have rendered projects infeasible.
“That said, it is still the case that contractors collectively anticipate sales, staffing levels and margins to rise over the next six months,” Basu said. “The expected pace of improvement has softened, however. With so much liquidity continuing to be injected into financial systems, investors have considerable sums to deploy in new investments. Real estate valuations and construction volumes benefit from such dynamics. Recent dips in commodity prices and more normal labor market functioning should help translate into slower cost escalations and rebounding backlog during the months ahead, ultimately reversing the backlog decline sustained in August.”
This sense of confidence returning has its roots in more than sales and margins rising. The Equipment Leasing and Financing Association (ELFA) released its Monthly Leasing and Finance Index (MLFI-25) for the month of August 2021 showing strength in the year-over-year activity. The Index, “which reports economic activity from 25 companies representing a cross section of the $900 billion equipment finance sector, showed their overall new business volume for August was $8.5 billion, up 21 percent year-over-year from new business volume in August 2020.”
ELFA showed that the August 2021 volume of new business was down 14 percent month-to-month from $9.9 billion in July, but year-to-date, cumulative new business volume was up 10 percent compared to 2020.
At the time of ELFA’s MLFI-25 report, the association was seeing in its September Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) a result of 60.5. While that’s an above-average number, it’s a decrease from the August index of 66.6. As ABC suggests, we’ve got a few more months to watch it curve back upward.
ELFA’s president and CEO, Ralph Petta, shared words of explanation and hope: “August data show some softness in equipment demand resulting from a mix of summer doldrums, continued supply chain disruptions and lingering pandemic-related woes. Business optimism, which peaked earlier in the summer, also has waned somewhat. However, when compared to where the economy and equipment finance business were a year ago, with the COVID-19 virus raging throughout the country, August new business volume is wholly acceptable.”
Jeffrey Hilzinger, the president and CEO of Marlin Capital Solutions, said, “2021, while much better than 2020, continues to be a challenging period for the equipment finance industry. While demand for equipment remains strong, August was the second consecutive month of reduced origination volume for the industry. Supply chain issues continue to be a key driver underlying this trend and seem to have worsened in recent months. On the positive side, approval rates have remained at pre-COVID levels and portfolio delinquencies and charge-offs remain at historically low levels.”