2024 Financial Forecast: Surge in Equipment Investment and As-a-Service Financing

If you’re going to be making capital investments in equipment this year, all eyes are on interest rates. Citing falling inflation over the past six months, the Federal Reserve has held rates steady. If economic growth continues to weaken, as expected, the Fed may feel pressure to begin cutting rates sooner rather than later.

That is one conclusion in the 2024 Equipment Leasing & Finance U.S. Economic Outlook released recently by the Equipment Leasing & Finance Foundation. The report is focused on the $1.16 trillion equipment leasing and finance industry, and highlights key trends in equipment investment.

The 2024 outlook forecasted a 2.2% expansion in equipment investment. While slightly slower than the growth rate experienced over the last 12 months, stronger investment activity is expected in the latter half of the year.

“The Foundation’s annual outlook demonstrates that the economy has managed to ‘thread the needle’ by maintaining solid growth in the face of higher interest rates while inflation returns to more acceptable levels,” said Zack Marsh, CLFP, Foundation chair and SVP, accounting and analysis, AP Equipment Financing. “Overall, while breakout growth in equipment investment looks unlikely in 2024, the prospect of lower interest rates and acceptable inflation levels should keep the industry on sound footing.”

Highlights From the 2024 Outlook

The foundation’s U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the Economic Outlook, tracks investment verticals. Over the next few months, the following trends are expected to materialize on a year-over-year basis:

• Construction machinery investment growth is likely to remain positive.
• Materials handling equipment investment growth should improve.
• All other industrial equipment investment growth will likely weaken.
• Trucks investment growth may slow but should remain positive.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. 

For the nearly 8 in 10 U.S. businesses across all industries that use financing for equipment acquisitions, Mitsubishi HC Capital America identifies five trends that are likely to impact the equipment finance industry in 2024:

• More cash buyers. As supply-chain stress has eased, commercial vehicle dealerships are seeing more cash buyers and a shortened sales cycle. As a result, dealers will need more floorplan financing to make sure they can keep the right inventory at the right times. OEMs, looking for ways to support their dealers, will increasingly turn to floorplan financing as one effective way to do so.
• Growth in cross-border deals. Coming out of the pandemic, business between Canada and the United States continues to ramp up. Lenders that offer strong cross-border financing – beyond having sales offices in each country – should do well in 2024.
• Continued increase in as-a-service financing. Companies in a wide array of industries are understanding the benefits of the as-a-service business model and will continue to figure out how to implement it. Instead of financing a single product or a product for a specific use, the as-a-service model effectively allows a company to finance its entire balance sheet.
• Rise of asset sharing. Asset sharing is a strategic agreement among businesses to share an asset for the benefit of both organizations. By pooling ownership across multiple users, companies can save money by upping the utilization of devices. Typically, the needed number of assets required decreases, which generally means the overall cost of ownership decreases. However, asset sharing requires tracking, maintenance and other support logistics, the same basic core services associated with as-a-service models.
• Interest rate worries and impacts. Many companies are concerned about the possibility of further interest rate increases from the Federal Reserve, and the likelihood of a recession. Interest rates will probably remain at current levels and may decrease somewhat.

By: Seth Skydel