By: Ron Caruso

(Every once and a while this industry leader puts his thumb on the wrist of our industry and both feels and counts the heart beat.  Here he has done it again with great profundity:)

As we near the end of the first quarter, this is an appropriate time to evaluate where the economy is, where capital expenditures are, and what to expect for the rest of the year. Let's look at each subject:


It's been a slow but steady pace for the first quarter. Consumer spending continues to sustain the so-called recovery. It in turn has been supported by low borrowing costs, significant deficit spending by the federal government and lower personal tax rates

The anticipated upturn in new hiring is still just that-anticipated. The economy shows no indication of a consistent, sustained push to increase employment. Perhaps the best summary for the first quarter is that nothing very bad occurred, but on the other hand, nothing very positive occurred.


Domestic major airlines are beginning to come back, but are facing significant competitive pressures from the so-called discount airlines. The good news is that more people are flying. The bad news is that competition is squeezing the air fares, which is wonderful for you and I, but not so wonderful for the major airlines, still trying to become cost competitive with their newer siblings. Fleet modernization is a major issue for some, but so is survival. Major upgrades must defer to this imperative.

Similarly, the manufacturing sector has not provided any clear signals of ramping up production, requiring new equipment and new hires. Office equipment has become a disposable item, but even this category does not show the dramatic growth which a vigorous economic rebound would envision.


We are in a presidential election year. This will be the center stage event for the rest of '04, barring unforeseen circumstances. We can expect Uncle Alan to keep money costs low, perhaps not moving them for the rest of the year. Unfortunately, there is not much more on the horizon that is cause for optimism. There are, also unfortunately, some grey clouds up there. Take employment- this will be a major campaign issue. The Bush track record in this regard has not been good. Outsourcing is becoming a political punching bag in Congress, similar to what the leasing industry has encountered. The view from here is that neither Congress, nor the President will be in a pro-active mode. Getting re-elected will be paramount. Everything else will be deferred or dovetailed into this priority.


Capital expenditures have not lived up to expectations or predictions. Moreover, certain types of leasing, e.g., municipal LILO's and SILO's, which have sustained the big ticket sector are “persona non grata.” Where do big ticket lessors turn for volume? The answer is (probably) to other market sectors. The result: rate compression. This will be good news for those acquiring new equipment, but could lead to a fierce struggle for market share and ultimately survival. Look for some lessors to fold up their tents, especially among bank lessors. Look for others to reassess their leasing operations and perhaps change their focus to becoming a service provided to bank customers, not a separate profit center operation. This is a year of continued caution and care-survival for many could become a critical issue. Stay tuned.

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