So far, 2017 has been an exciting year for our industry. Looking at the industry numbers from May through August, there’s been a steady recovery and consistent growth, driven by a strong economy and a growing underlying confidence within the business community. But at the same time, there’s something strange going on. I get the sense that although we’re having a solid year, most people will tell you that it still hasn’t felt all that good.

So why the hesitation? At the end of 2016, activity was slow as businesses were uncertain about which way the economy was trending. There was a hangover from the oil and gas sector, whose issues had a much broader effect than any of us thought they would in terms of asset values and the knock-on effect in correlated industries. But that’s beginning to burn off now. Individuals and businesses are becoming more and more confident about how the economy is looking; and they’re starting to invest in equipment for both maintenance and expansion.

Most of our customers would say their individual business performance is strong. They’re making investments and considering projects they maybe haven’t considered in the last couple of years. When you talk with them one-on-one about how they see things from a more macroeconomic perspective, however, there’s a palpable sense of uncertainty. They use a lot of phrases like, “Lukewarm,” “It’s still a bit early.” “What’s going on politically?” Essentially, what our clients are saying indicates uncertainty, but what they’re doing suggests they’re optimistic.

There’s also been conflicting data, with industry numbers from the Equipment Leasing and Finance Association (ELFA) at times looking a little anemic, while the banks are reporting solid business. I think that’s easily understood. Industry data is generally a lagging indicator, given the fact that the projects to be financed were typically approved months before the financing was finalized.

The most recent Equipment Leasing & Finance Foundation Confidence Index bears this out. Confidence in the equipment finance market was 64.4 in August, up from 63.5 the previous two months. That's a sign that executives expect business conditions to improve in the coming months.

When you combine these views with what our customers are telling us in real time, it’s clear that expansion is back. There are some really positive things happening in the economy that should make all of us in the industry optimistic that growth is returning.

Expansion Mode Returns

We’ve been in an environment over the last 18 to 24 months where there just hasn’t been that much expansion. If anyone in the equipment finance industry wanted to grow they’ve had to take share from others. When you combine that with a historically low-rate environment, you’re talking about challenging times in our industry.

What’s exciting now is that the market appears to be growing again. Businesses are starting to expand. We’re seeing it in areas like food manufacturing, rail and automotive manufacturing. Just recently there’s been a rebound in corporate aircraft values, which is encouraging. Across these sectors we’re seeing new contracts being formed and new equipment being acquired.

Along with strong individual business performance, the economy is driving expansion more than we might typically think. The real question is, why? It’s somewhat surprising to me that these sectors are starting to reinvest and grow when there’s still so much political uncertainty. We haven’t had any substantive trade or tax policy come out of Washington in quite a while, and the signals we have had have been mixed.

So the fact that these industries are still investing and growing in the face of that uncertainty may be a sign that the economy is doing better than any of us really know. That is truly exciting, especially as we move into 2018.

Time to Start Believing

With a slow-growth economy over the last three or four years, and an inconsistent recovery from the Great Recession of 2008 to 2010, it’s not surprising we have a hard time believing things are going well. But the fact of the matter is, they are.

BMO Capital Markets Chief Investment Strategist Brian Belski has said we’re in the midst of a 20-year bull run, and I think he’s right. The economy is really strong. If we get any type of stability around tax and trade, then look out — this could be a really great next few years. At the same time banks are starting to flex their muscles a little bit. Banks have a natural cost of funds advantage, and they’re continuing to use that advantage to take market share from some of the independent and captive finance companies.

Of course, you always have to think about what could potentially derail progress. The volatility around energy and commodities in today’s marketplace is something that could create issues. Energy still has not recovered. We’re starting to see some recovery in the shale and fracking business, but it still isn’t completely back. Agricultural and commodities markets are still struggling. If there’s a geopolitical event, or a disruption in either the energy or agricultural markets, that could slow everything down again.

The only other looming issue I see ahead is corporate tax reform. If there were to be a material change in corporate tax rates, or how companies are able to recapture expenses relating to equipment, interest deductibility or depreciation expense, that’s a policy issue that could really impact this industry. 

A Bright Future

The future of our industry is innovation. We built our practices around providing customized equipment solutions in ways that were different from traditional financiers. What I see happening right now in fintech and with some of our independent and small-ticket providers on the customer delivery side — including credit scoring models, e-signatures and ease of access for customers — is a really good forward-looking indicator of how this industry will perform. Our industry has traditionally been ahead of the curve in customer delivery, and that’s what’s going to be the real differentiator in the future.

There are also new market opportunities. Technology in and of itself is always an emerging market. Areas like renewable energy, battery and backup storage power, and software and cloud services are coming into their own. The ability to finance assets that are softer in nature but critical in use has the potential to be a real growth engine for this industry in the future.

The interesting next step will be the intersection between software and robotics. We talk a lot about artificial intelligence (AI) and how that’s going to impact manufacturing cycles, credit models and data models. The new challenge will be figuring out how to benefit as an industry that finances equipment. Is software equipment? What part of AI is comprised of equipment? And how can we help companies finance that future?

So go ahead — feel good about where we are, invest in your company’s future and plan for success. We’re in the midst of a strong economy, and our industry has a big role to play in equipping businesses for success.