Weekly Industry Crib Sheet: Equipment Financing Surges
Trade Gap Narrows Sharply in June
The United States trade deficit shrank to $42.9 billion in June, a 10.7 percent decrease from the revised total of $48 billion in May and the third consecutive month of improvement, according to the U.S. Department of Commerce. An uptick in exports and a drop in imports helped bring the trade gap to its lowest level since December 2010. June exports increased 0.9 to a record $185 billion, while imports fell 1.5 percent to $227.9 billion.
The goods deficit for the month fell to $57.5 billion, a $5.4 billion decrease from May, while the services surplus inched down by $0.3 billion to $14.6 billion. Goods exports rose $1.8 billion to $132.8 billion, led by increases in consumer goods; automotive vehicles, parts and engines; and industrial supplies and materials. Goods imports fell $3.6 billion to $190.3 billion, led by lower demand for foreign industrial supplies and materials, consumer goods and foods and beverages.
“A narrower trade gap acts as less of a drag on growth because it means the United States is spending less on foreign-made products and is taking in more from sales of U.S.-made goods. The sharp drop in the deficit could mean the economy actually grew at a faster pace in the April-June quarter than first estimated,” the Associated Press reports. However, “[e]conomists are worried that slower overseas growth will reduce demand for U.S. exports. About one-fifth of U.S. exports go to Europe, which is in the third year of a financial crisis.”
The U.S. trade deficit with the Eurozone narrowed to $7 billion in June, down from $8.7 billion in the same month last year. Year-to-date exports to the region totaled $100 billion, up 2.8 percent from the same period last year. Despite the improvement in the overall trade deficit, the politically sensitive trade gap with China widened to $27.4 billion in June.
Equipment Financing Grew in 2011
The equipment finance industry reported 16.5 percent growth in new business volume in 2011, according to a recent survey from the Equipment Leasing and Finance Association(ELFA).
The report is based on responses from 109 ELFA member companies and reveals that new business volume growth exceeded the 3.9 percent increase in 2010, up from a 30.3 percent decline in 2009 and a 2.2 percent decline in 2008 — recession years marked by a general slowdown of economic activity.
Overall, more than 75 percent of the survey respondents indicated growth in new business, up by 10.2 percent in the large-ticket segment, 21.8 percent in the middle-ticket segment and 15.2 percent in the small-ticket segment. However, the smallest “micro-ticket” segment fell by 4.8 percent. Independents reported the strongest increase in new business volume, with a 19.7 jump from 5.7 percent in 2010.
From an asset perspective, the equipment types that had increases in new business volume included agriculture; construction; furniture; fixtures and equipment; industrial/manufacturing; materials handling; printing; transportation; and computer equipment.
“The relative strength of computing equipment and software is a sign that companies view information technology as a strength to their businesses,” the Wall Street Journal notes.
Industrial Product M&As Slowing
Global merger and acquisition (M&A) activity in the industrial products industry slowed in the second quarter of 2012, particularly in the Eurozone countries, as management teams are becoming more cautious in light of widespread economic uncertainty, according to a report from PricewaterhouseCoopers (PwC).
Across the entire industrial products industry, there were 173 M&A transactions worth $50 million or more and totaling $64.7 billion in the second quarter of 2012, down from 228 deals and $76.9 billion in total value during the second quarter of 2011. The slowdown was due largely to the ongoing financial and sluggish performance in the Chinese economy.
“On a positive note, U.S. companies were relatively active in the transactions arena, including outbound deals, as they seek to tap into niche markets and acquire new technologies,” Robert McCutcheon, U.S. industrial products industry leader for PwC, noted. “M&A strategies are being driven by the prevalence of strong balance sheets, as well as increasing pressure from shareholders to secure growth outside of saturated and competitive domestic markets. However, management teams are continuing to proceed cautiously as they wait for clarity on multiple issues impacting the global economy.”
Smaller sub-sector deals drove most of the volume in M&A activity over the past quarter, especially in the industrial manufacturing sector, where smaller deals increased in the electronics, electrical equipment and fabricated metal industries.
Manufacturing Productivity Improves in Q2
U.S. manufacturing productivity showed modest growth in the second quarter of 2012, part of an unexpected rebound in non-farm labor productivity across the country, according to theU.S. Department of Labor on Wednesday.
Manufacturing productivity rose 0.2 percent between April and June, while output grew 1.7 percent and hours worked increased 1.4 percent. Over the last four quarters, manufacturing productivity increased a total of 2.9 percent, compared to 2.5 percent growth in 2011. Manufacturing output rose 5.6 percent and hours worked rose 2.6 percent, while unit labor costs rose 0.3 percent, a 2.9 percent slowdown from Q2 2011.
Overall, U.S. non-farm labor productivity was up 1.6 percent in the second quarter, marking a 1.1 percent increase over the same period last year. These numbers surpassed industry expectations.
“The reading was in line with the forecast and vastly outperformed consensus expectations of only a modest gain in productivity,” Arijit Dutta of Moody’s Analytics told IndustryWeek. “Revisions to the data show productivity growth was substantially stronger in 2011 than previously reported, partly explaining why businesses have not hired in large numbers during the recovery.”
Productivity gains for 2001-2011, the most recent 10-year period data available, in the manufacturing sector were documented at an annual average rate of 3.3 percent.
Jobless Claims Drop Unexpectedly
New initial jobless claims fell in the latest week reported, indicating that labor market conditions may be stabilizing following several weeks of volatility, according to the U.S. Department of Labor. Seasonally adjusted unemployment claims for the week ending August 4 dropped to 361,000 a decrease of 6,000 from the previous week’s revised total.
Meanwhile, the four-week moving average, which provides a more accurate long-term picture, increased by 2,250 to 366,000 for the week.
The latest weekly improvement came as a surprise, as economists polled by Reutersexpected jobless claims to rise to 370,000. Much of the improvement may be attributed to the end of temporary fluctuations in the number of U.S. auto workers, which typically undergoes dramatic swings in mid- to late-summer.
“The decrease in firings indicates the job market continues to mend after payrolls rose last month by the most since February,” Bloomberg News notes. “The world’s largest economy needs bigger gains in employment to prevent the lingering European debt crisis and approaching U.S. fiscal cliff from derailing the economic expansion.”