The U.S. economy continues to be buffeted by cross-currents that are expected to persist well into 2013. On the positive side, the housing market is exhibiting clear signs of recovery, auto sales have nearly rebounded back to pre-recession levels, and job creation has been showing encouraging signs of improvement. And importantly, the resurgence of the U.S. manufacturing sector should continue to support economic growth in the United States, particularly through growth in non-traditional sources of energy and other capital-intensive manufacturing sectors.
Headwinds to growth, however, include both higher tax rates and fiscal consolidation that are expected to adversely impact consumer and government spending. There is also considerable weakness in Europe and Japan, which has depressed U.S. exports. Additionally, high global energy prices remain a drag on growth. Any mid-year disruption in oil supplies or refining could stall economic growth by raising consumer prices and slowing real consumption spending. Lastly, continued political wrangling over the budget and the debt ceiling in Washington could hurt confidence and slow business investment.
On balance, we expect that the positives will outweigh the negatives, and that the U.S. economy will generate positive but modest growth of 2.2% in 2013.
Equipment and software investment accelerated in Q4 2012 after contracting in Q3, which may have been partly due to a “pulling forward” effect as businesses anticipated changes to tax policy in 2013. Looking ahead, we anticipate growth of 5.6% in 2013, which is above average over the past 10 years, and higher than the 2.9% growth forecast in our 2013 Annual Report.
- Agriculture equipment investment is expected to remain negative on a year-over-year basis over the next 3 to 6 months, with the potential for positive growth late in 2013.
- Computers & software investment is expected to transition from slow growth in the near future to more normal growth in the second half of the year.
- Construction equipment investment should continue to achieve above average growth over the next 3 to 6 months, though the rate of growth should continue to decline from recent highs.
- Industrial equipment investment is expected to grow at a moderate pace over the next 6 months as positive and negative drivers more or less balance each other out.
- Medical equipment investment should continue to experience little to no growth in the first half of 2013.
- Transportation equipment investment slowed slightly in the second half of 2012 but should remain near an average rate of growth in the first half of 2013.
Credit market conditions continue to improve, and many indicators have returned to levels not seen since the onset of the recession. The Federal Reserve’s accommodative monetary policy has kept interest rates near historical lows, which has helped bolster the flow of credit to businesses and households. Demand for capital, however, continues to be affected by policy uncertainty and shaky business confidence. Financial stress remains subdued and indicates that the long process of deleveraging for both businesses and households has helped to clean up balance sheets.
Our outlook for credit markets continues to hinge on newfound “risk-on” attitudes from investors – whose confidence is improving – and continued accommodative monetary policy from the Federal Reserve. Businesses and households are in strong financial positions to make investments, so long as policy uncertainty and other global headwinds do not hamper confidence.