Investment in equipment and software is expected to grow 4.1 percent in 2015, according to the Q4 update to the 2015 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. The Foundation lowered its forecast to 4.1 percent, down from 5 percent growth forecast in its Q3 Update to the 2015 Annual Outlook released in July. The new report predicts that after a slow start to the year, equipment investment will pick up during the second half of 2015. The Economic Outlook, which is focused on the $903 billion equipment leasing and finance industry, forecasts 2015 equipment investment and capital spending in the United States and evaluates the effects of various industry and external factors likely to affect growth over the next 12 months.
William G. Sutton, CAE, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association (ELFA), said, “The Foundation’s Outlook forecasts that equipment and software investment will pick up over the second half of 2015 after a slow start — although concerns about global economic weakness, renewed political uncertainty, and other potential headwinds are key trends to watch in the coming months. This outlook is consistent with data from the Foundation’s Monthly Confidence Index and ELFA’s Monthly Leasing and Finance Index, which both indicate solid industry performance. Capital spending is expected to outpace GDP growth again this year, and the investments made by U.S. businesses are increasingly reliant on financing solutions.”
Highlights from the study include:
• The U.S. economy is expected to grow 2.6 percent in 2015. GDP growth accelerated from 0.6 percent in Q1 2015 to 3.9 percent in Q2. Key drivers of the second-quarter expansion included consumer spending and housing investment, while net exports, government spending and business investment also positively contributed to growth. However, the weak start to 2015 virtually assures that annual GDP growth will be below the long-term historical average of 3.0%.
• Growth in equipment and software investment slowed from 3.9 percent in Q1 2015 to 1.7 percent in Q2, driven by sharp contractions in energy and railroad investment. Overall, a modest pickup in investment is forecast for Q3 and Q4, bringing annual investment growth to 4.1 percent in 2015, down from 6.0 percent in 2014.
• Recent gradual increases in credit supply and demand reflect a healthy U.S. credit system. Although the Fed kept interest rates at zero in September, citing global economic fears, an interest rate hike is anticipated in late 2015 or early 2016. The prospect of higher interest rates could encourage businesses to “pull forward” investment and provide a boost to the equipment finance industry.
• 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 the following equipment investment activity:
o Agriculture machinery investment growth will likely remain weak or negative over the next three to six months.
o Construction machinery investment growth should remain solid over the next three to six months.
o Materials handling equipment investment growth should slow over the next three to six months.
o All other industrial equipment investment growth is likely to moderate over the next three to six months.
o Medical equipment investment growth is expected to stabilize or slow over the next three to six months.
o Mining and oilfield machinery investment will remain weak over the next three to six months.
o Aircraft investment growth may remain solid over the next three to six months.
o Ships and boats investment growth may stabilize or slow somewhat in the next three to six months.
o Railroad equipment investment growth is likely to remain weak over the next three to six months.
o Trucks investment growth could ease somewhat over the next three to six months.
o Computers investment growth rates should increase modestly over the next three to six months.
o Software investment growth will likely remain strong over the next three to six months.
The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economics and public policy consulting firm Keybridge Research. The annual economic forecast provides a three-to-six month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. The Q4 report is the third and final update to the 2015 Annual Outlook.
Download the full report at www.leasefoundation.org/research/eo/.