First, there was the fiscal cliff (which hasn’t gone away). But recently it’s overshadowed by the trauma of the government stand-off over the debt ceiling.

Until 16 October, it looked like the US might, for the first time ever, be in a position to default on its $16.7 trillion government debt, if an agreement with elements of the Republican Party in Congress on raising the ceiling could not be reached. But at the eleventh hour, Congress agreed on a deal to reopen the government and allow new sovereign borrowings, ending three weeks of high drama on Capitol Hill. However, the agreement only ‘kicks the can down the road’ until February 2014, so Americans face the possibility of another bitter budget fight and another government shutdown early next year.

With global economies still stuttering, China’s growth slowing, and continuing eurozone uncertainty, economic nerves are still strung tight – witness how the markets recently took fright at Fed Chairman Ben Bernanke’s indication that they were considering the tapering of quantitative easing. At the start of the new US financial year, the world’s largest economy looks more than a little shaky, according to some commentators.

None of this is good news for businesses, particularly the small businesses that form the core of the US economy that need economic growth and stability, and access to finance. But it should not be forgotten that the US economy is still the largest in the world by a considerable margin, and that creates commercial opportunities and benefits. The fundamentals are strong, and many features continue to make US companies enviably productive, such as strength in research and development, innovation, and flexibility.

The US economy is growing, albeit slowly at 1.7% increase in GDP for 2013 and forecast 2-3% for 2014, and is once again is leading the way out of recession. In the last financial year, the Dow Jones Industrial Average has risen by more than 12%, the S&P 500 Index has risen more than 16%, and the MSCI ACWI Index of developed and prominent emerging market indices has risen over 14%. There is liquidity in the financial institutions. And the potential reduction of QE is surely an indicator that the economy is moving in the right direction, even if it is not growing as fast as some had hoped and predicted.

Asset finance outpaces GDP

For the asset finance and leasing market, there is good news – it is expanding ahead of the economy and is anticipating accelerating growth in the second half of 2013 at 3.3% and to over 4% through 2014, according to the most recent report from the ELFF (October 8 2013). Although this rate of growth is still only expected to move up slowly through the gears, there are signs that business confidence is on the rise again, with a greater percentage of SMEs planning to make capital outlays in the near term, encouraged by the prospect of the Fed maintaining short-term interest rates at close to zero. The equipment finance and auto sectors are being driven both by pent-up demand for replacement, as well as organic growth, although as yet at a relatively sluggish pace.

According to ELFA’s annual Survey of Equipment Finance Activity (SEFA) based on submissions by reporting members relating to their US business, new business volume (NBV) grew 16.4% in 2012, maintaining the growth rate achieved in the previous year. ELFA’s MLFI-25 new business volume index for the first eight months of 2013 was up 7.7% on the same period in 2012.

In all, 79% of respondents saw NBV increase in 2012, an increase of three percentage points on 2011, and continuing the momentum built up after 2010, when the figure was only 28%.

Transportation was the business category with the highest percentage growth in 2012, rising 48% to take 11% of the total market share. This category contained the equipment sector that had the highest growth in dollar terms – trucks – which had a 63% increase in NBV. This indicates that fleets are being replaced after some years of low investment.

Of all new vehicles financed, leases accounted for 27.64% in Q2 2013, up from 24.4% in Q2 2012. And research by J.D. Power indicates that retail light-vehicle sales for the combined months of August and September 2013 are up by more than 10% over the same period last year – a fair sign of the overall health of the industry.

Confidence is key

It all comes down to confidence. The basic fact is that the main driver is economic growth, with investment in capital goods at the forefront. Businesses need to have confidence in economic growth being sustained, allied with assurance in monetary and regulatory policy. Demand represents opportunities for growth, but is held in check because companies remain cautious. As business executives and consumers become more confident, demand will increase at a greater rate and the asset financing and leasing industry, having been in a holding pattern since the recession, will be able to make up for lost time and grow at a faster pace. Overall, provision of loans to business has remained muted, but there is available capital and lessors that are more willing to lend than banks. The opportunities are there for lessors, and the longer-term prospects are for the upward trend to gain momentum.

The White Clarke Group USA Asset and Auto Finance Country Survey 2013 is available to download here.