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New Outlook Expects Equipment Investment to Only Grow by 0.9%

Construction News: Equipment Purchases


July 13, 2016 - Investment in equipment and software is expected to grow only 0.9 percent in 2016, according to the Q3 update to the 2016 Equipment Leasing & Finance U.S. Economic Outlook released today by the Equipment Leasing & Finance Foundation.

 

The Foundation revised its forecast to 0.9 percent, down from 2.7 percent growth forecast in its Q2 update to the 2016 Economic Outlook released in April. The slow growth in business investment is due to a combination of slow growth in the global economy, a contraction in trade, heightened political uncertainty and low commodity prices. The Foundation’s report, which is focused on the $1 trillion equipment leasing and finance industry, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate.

 

Ralph Petta, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association, said: “Sluggish growth in equipment and software investment projected over the short term by this latest Foundation analysis is indicative of the slowdown in business fixed investment reported by federal government data over the past several quarters. The equipment finance sector generally mirrors overall performance of the U.S. economy. A number of factors, both domestic and externally focused, cloud the growth picture for the equipment finance industry, and this slow-growth scenario, in all likelihood, will continue for the rest of the year as many ELFA members report soft business conditions.”

 

Highlights from the study include:

•  Equipment and software investment is expected to increase by just 0.9 percent this year, a significant slowdown from last year’s 3.8 percent growth. Equipment and software investment contracted significantly in the first quarter of 2016, and although investment should rebound somewhat in the months ahead, the poor first quarter performance will limit overall investment growth for the year.

•  Supported by generally healthy domestic fundamentals, the U.S. economy is forecast to expand 2.2 percent in 2016, slightly slower than the pace of growth over the past two years. Headwinds, including uncertainties posed by the results of the Brexit referendum, a trend of declining global trade and a persistently strong dollar, are expected to continue to hurt U.S. market confidence and slow economic growth.

•  A modest increase in business demand for credit may indicate a small revival in business investment later in the year. Overall, credit markets are healthy and do not currently exhibit any major red flags that would hurt consumers or businesses this year.

•  The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report and tracks 12 equipment and software investment verticals, forecasts that investment in most verticals is likely to remain relatively weak through the end of the year. Over the next three to six months:

  • Agriculture machinery investment growth should remain weak.  
  • Construction machinery investment growth will likely remain sluggish.
  • Materials handling equipment investment should grow slowly.
  • All Other Industrial Equipment investment growth is likely to weaken.
  • Medical equipment investment should grow modestly.
  • Mining & oilfield machinery investment growth will likely remain negative.
  • Aircraft investment growth may remain weak, although growth is historically volatile.
  • Ships and boats investment growth will likely slow.
  • Railroad equipment investment growth is likely to remain negative.
  • Trucks investment growth should be subdued, but a turnaround may be on the horizon.
  • Computers investment growth is likely to grow modestly.
  • Software investment growth is poised to remain solid.

 


The Foundation will host a one-hour webcast on July 20 at 1 p.m. EDT on the Outlook report and how to use the data to improve business decision-making. To register, email Foundation@LeaseFoundation.org. Learn more at www.leasefoundation.org/research/EO/.

 

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