2024 Outlook for Equipment Acquisition and Financing
By Leigh Lytle, President and CEO of the Equipment Leasing and Finance Association (ELFA).
Going into 2024, there are numerous economic and market conditions that construction businesses need to keep track of when making their equipment investment decisions.
The U.S. economy appears increasingly likely to avoid a recession and on track for a “soft landing” as inflation has been brought to more acceptable levels and the labor market has remained healthy.
However, the overall economy is likely to continue to slow, and the forecast for equipment and software investment growth is slightly lower than in 2023.
The Federal Reserve’s plans for interest rate cuts notwithstanding, the current historically high interest rate environment, combined with increased geopolitical volatility and rising business and consumer stress, is undoubtedly weighing on businesses’ capital expenditure plans.
Despite this uncertainty, construction machinery should perform reasonably well this year, according to the Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor.
The Momentum Monitor, which identifies turning points in the investment cycles of 12 key equipment investment verticals, shows construction machinery investment growth was up 11% year-over-year in Q3 2023, and is likely to remain positive through Q2 2024.
Equipment Finance Activity
While equipment and software investment growth will remain modest, it is expected to strengthen in the second half of this year.
Historical data show that nearly eight in 10 U.S. businesses will use equipment leasing and financing to acquire the productive assets they need to operate and grow.
The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index, which reports economic activity from 25 companies representing a cross section of the $1 trillion equipment finance sector, showed that cumulative new business volume in November 2023 was flat year over year, and up 4.1% year to date from 2022.
10 Trends to Watch
To help businesses with their equipment acquisition planning, ELFA has compiled the Top 10 Equipment Acquisition Trends for 2024.
The trends below are distilled from recent research and data, including the Equipment Leasing & Finance Foundation’s 2024 Equipment Leasing & Finance U.S. Economic Outlook and industry participants’ expertise.
1. The U.S. economy will likely have a soft landing. While a recession is still possible in the first half of 2024, the likelihood of a “soft landing” is increasing. The combination of cooling inflation, a healthy labor market, and improved consumer sentiment supports a forecast of 1.7% growth in real U.S. GDP.
2. The pace of growth in capital spending will improve during the year. Real equipment and software investment growth of 2.2% is expected this year. While slightly slower than the growth rate experienced in 2023, stronger investment activity is expected in the latter half of the year.
3. Downward pressure on interest rates will ease borrowing costs. After a tumultuous higher interest rate environment, easing inflation has led the Federal Reserve to plan for incremental rate cuts in 2024 and beyond. These will be welcome developments amid tightened credit availability and weaker credit demand.
4. The majority of equipment acquisitions will be financed. In 2024, more than half (54%) of equipment acquisitions are forecast to be financed. Eight out of 10 businesses will use leases, secured loans, or lines of credit for their acquisitions as they find these to be beneficial options compared to outright purchases of equipment.
5. Automation and robotics will drive major investments by industrial businesses. Businesses in logistics, retail and consumer goods, food and beverage, and the automotive industries will lead in investment in robotics and automation. A general lack of experience with the new technology will require equipment manufacturers (OEMs) and dealers to focus on providing quality customer service to help get end users up and running. Globally, industrial automation is forecast to grow over 8% annually through the decade.
6. Equipment-as-a-service will ease businesses’ access to productive assets. With the global equipment-as-a-service (EaaS) market growing at an annual compound rate of around 50% through 2030, more U.S. businesses will deploy subscription-based equipment usage. They’ll shift from a capital expenditure to an operating expense model to eliminate substantial upfront investment and have greater flexibility as equipment OEMs provide a single point of contact for equipment and related software, supplies and services.
7. Businesses will dive deeper into AI. As automation and robotics handle specific, repetitive tasks, U.S. businesses will explore ways to incorporate artificial intelligence (AI) that recognizes data and simulates human thinking into their processes. Marketing and technology functions lead in AI use, and other early adopters will enjoy competitive advantages.
8. Many equipment types will thrive as still-elevated interest rates drag on investment growth. While equipment and software investment is unlikely to experience breakout growth in 2024, construction machinery, computers, software and aircraft are strongly positioned through the first half of the year.
9. Investment in climate-focused projects will accelerate. Climate-focused initiatives will continue to grow in industries from transportation to consumer goods as regulators, consumers and partnering businesses in the value chain require compliance. Projects will be supported by unprecedented funding from sources including the Inflation Reduction Act (IRA), and financing from financial institutions and independent lenders.
10. “Wild cards” will factor into business investment decisions. Businesses will keep an eye on other areas that could impact their equipment acquisition strategies in addition to the trends above. A global economic slowdown, the Israeli-Hamas war, Russia-Ukraine war, continued animosity between the United States and China, and the 2024 elections will be among the impacts to watch this year.
Continued volatility requires keeping abreast of economic and market conditions, and is critical for your company to take advantage of new business opportunities. Leveraging the power of financing for capital investments can enable you to equip your business for success.
The Equipment Leasing and Finance Association (ELFA) is the trade association that represents companies in the $1 trillion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA has been equipping businesses for success for more than 60 years. Visit www.EquipmentFinanceAdvantage.org, ELFA’s informational website for end-users, for additional information.