CHICAGO (Reuters) - The head of an group representing the lenders who finance half the capital equipment investment in the United States forecast on Friday that January was another ugly month for corporate spending on big-ticket items.
In an exclusive interview with Reuters, Ken Bentsen, the president of the Equipment Leasing and Finance Association, also warned the U.S. economy was poised for a “severe and deep recession” unless a government stimulus plan was passed quickly.
“There’s really no one else out there at the moment — other than the government — who has the ability or the wherewithal to go out and consume and take on the risk that things won’t get better for awhile,” Bentsen said.
Bentsen, a former four-term Democratic congressman from Texas, said the fourth quarter had been a “lost quarter” for ELFA’s members, which include Bank of America Corp (BAC.N), GE Capital and the in-house finance arms of Caterpillar Inc (CAT.N) and Deere & Co (DE.N), among others, as demand for loans, leases and lines of credit “just fell off a cliff.”
“We ought to assume that January is going to look pretty bad on demand and that delinquencies are going to continue to tick up,” Bentsen said. “Let’s see what February and March look like.”
Bentsen said businesses were postponing capital spending, “both out of declining demand and prudence.” He said that, while there were still corporate borrowers out there looking for money, “it’s a declining pool.”
The interview came just hours after the U.S. government reported the sharpest contraction in the U.S. economy in 26 years, pulled down in part by a dramatic drop in consumer spending.
That followed a report on Thursday showing orders for durable goods fell for a fifth month in December.
Bentsen said that with consumers and businesses slashing their spending simultaneously, government was “the only game in town” to rekindle demand and help the economy avoid taking another turn for the worse in what already is widely seen as the worst downturn in 70 years.
He said the current stimulus plans under consideration were “on the right track. But they need to do it as quickly as possible.
“There’s a greater risk “economically and psychologically, in not doing something than doing something and either overshooting and creating some inflationary pressure or adding to the deficit,” Bentsen said.
ELFA would like to see a number of provisions in any stimulus package. These include some obvious things, such as funding for highway, road and infrastructure projects, as well as medical record digitalization, which would encourage equipment and IT spending. But ELFA also supports corporate tax tweaks it believes would encourage companies to pull forward capital spending.
Of the $1.1 trillion invested in plant, equipment and software in 2006, 55 percent or $600 billion was financed through loans, leases and lines of credit from the companies represented by ELFA, according to a 2007 study by Global Insight.
Editing by Andre Grenon