U.S. companies borrowed more to buy equipment in February than a year ago, though less than in January, and spent mostly for new technology and aging goods replacement, the Equipment Leasing and Finance Association said on Monday.
Where spending is on the rise, most of it appears to be focused on technology to improve productivity, the group's Chief Executive William Sutton said in an interview.
Caution about events spanning from Europe's economy to the U.S. presidential election and oil prices is holding many businesses back from materially stepping up equipment investment for expansion rather than for replacement.
Companies signed up for $5.0 billion in loans, leases and lines of credit in February, 22 percent more than $4.1 billion a year earlier, but 2 percent below January's $5.1 billion, ELFA said.
In areas of business process improvement, efficiency, automation, healthcare IT, there are anecdotally signs of expansion, Sutton said.
The group, which reports economic activity for the $628 billion equipment finance sector, expects economic improvement to be steady but slow.
It's a compilation of a whole bunch of uncertainties that range from deficit reduction, comprehensive tax reform, the regulatory environment, the situation in Europe, the price of oil and the election, said Sutton. A lot of dollars are staying on the sidelines because of uncertainty.
Credit quality measures were mixed in February, after improving in January to the best levels since 2006, ELFA said.
The group said 2.5 percent of borrowers were late on their debts by more than 30 days, up from a pre-recession low of 1.9 percent in January.
The increase was due to above-normal delinquencies reported by one of the 25 companies in the group's survey, which ELFA declined to specify. The delinquency rate had been double the current rate, however, as recently as two years ago in February 2010.
Charge-offs, which reflect loans unlikely to be repaid, were unchanged at 0.5 percent. The rate reached 3 percent as recently as 2009 and has fallen steadily as companies clean up portfolios of poorly performing loans, the group said.
Credit approvals rose to 79 percent in February from 77 percent in January.
Jerry Newell, executive vice president at Bank of the West in San Francisco, said the bank is seeing rising equipment finance demand for expansion though much of the capital spending is for equipment upgrades deferred during the recession.
While a few industry segments remain soft, overall we are cautiously optimistic that the equipment leasing and finance industry will continue to see growth at a moderate pace this year, he said in a statement.
ELFA's monthly index is based on a survey of 25 member organizations, including Bank of America Corp
Separately, the Equipment Leasing & Finance Foundation, a non-profit affiliate of ELFA, on Friday said its confidence index for March, the latest data available, rose to 61.7 from 59.6 in February.
The sentiment gauge has been on the rise since hitting a recent low of 47.6 last September and the highest since 63.2 in May 2011.
(Reporting By Lynn Adler; Editing by Chizu Nomiyama)