1. Business Has Been Investing – Just Not in Machinery and Equipment
Spending on non- residential capital rose with the commodity price boom and is being sustained by public sector spending
Spending on machinery and equipment has been relatively weak since the recession
This weakness is partly due to changes in the value of the Canadian dollar which encouraged M&E spending after 2003 but reversed in 2013
Source: Statistics Canada, data from 1961 to 2015
Employment rate is the proportion of the working age population that is employed
Capital-output index is the ratio of undepreciated constant dollar capital (by type) divided by constant dollar GDP with an index value of 100 in 2007

2. Business Investment in Canada Lags the Competition
Business investment in Canada is consistent with historical trends but…
C.D. Howe Institute research finds that business investment spending per worker lags the US and the OECD average
81% of OECD and just 69% of US average in 2015
Source: C.D.Howe Institute, A Crisis of Capital: Canadian Workers Need More Tools, Buildings and Equipment (2015). Table 1a/b

3. The Outlook for 2016 and 2017 is Mixed
M&E spending down 4% in 2016 (-$3.4 billion) but up 4% in 2017
Auto sales +3% in but -4% in 2017
Interest rates could rise in 2017: Three month T- bill rates up to 1.1% in from 0.5% and 10 year GOC yields up to 2.3% from 2.0%
Source: Statistics Canada, DesRosiers Automotive Consultants Inc., The Centre for Spatial Economics

4. Public & Private Investment Spending: the downturn spreads

5. Beyond mining... now service sector weakness

6. CFLA Market Size Estimate Methodology
Statistics Canada: Capital and Repair Expenditures Survey
PMG Intelligence: CFLA Equipment Financing Market Research (2015)
CFLA: Small company membership data
PayNet: Canadian Equipment Lending Indices
DesRosiers Automotive Consultants Inc: Vehicle Finance Model

7. From PMG Intelligence Survey Results to CFLA Market Size Estimates
Number of businesses in Canada X
Proportion that purchase M&E in 2015
Mean % of time transaction is financed
Median value of equipment financed =
Estimated market
By:
Customer Sector (Goods/Services)
Customer Size (Small/Medium/Large)
Range of New Business Finance Estimates for Private Business Spending in 2015 and % change
from 2013:
Low: $22.2 billion (-22%) to
High: $46.1 billion (+62%)
with
Average: $30.6 billion (+7%)
so…
CFLA Est: $29.6 billion (+4%)

8. Asset-based Finance Market in 2015
New business up 5% in to $117b
Finance assets up 7% in 2015 to $354b
Fleet new business up 23% and retail vehicles up 6% in 2015
M&E (excluding fleet) new business down 4% in 2015

9. Market Penetration Remains Strong
Equipment & commercial vehicle finance penetration rates remain strong
Retail vehicle finance rates also robust with leasing continuing to make gains

10. New Business Finance by Instrument & Source
Equipment & commercial vehicles: 34% lease, 44% banks
New & used retail vehicles: 21% lease, 51% banks and 39% manufacturers’ captives

11. Minimal Immediate Benefits from M&E Spending
This analysis is based on public and private spending on machinery, equipment and commercial vehicle spending using an input-output model of the Canadian economy
$1 of spending on new machinery, equipment and commercial vehicles adds about $0.25 of GDP to the economy at the direct level – the remainder is imported
Adding indirect impacts (spending on suppliers etc.) raises the impact on GDP to just over $0.40

12. Long-term Economic Benefits of M&E Spending
$35 billion of new asset financing in added $17 billion to the economy in and will add $20 billion to the economy over the next 5 years; raising the cumulative discounted value of GDP by $50 billion
For every dollar spent on new M&E, new production from that capital adds the equivalent of $1.40 to the economy over the next 25 years
This analysis is based on public and private spending on machinery, equipment and commercial vehicle spending allocated by province and sector across Canada using the C4SE’s Provincial Economic Modelling System