This comprehensive report analyzes global and domestic trends impacting capital spending and economic growth in the coming year. It identifies key signposts specific to the equipment finance industry and features Momentum Monitors that identify turning points for 12 verticals in their respective investment cycles. The outlooks are updated quarterly.
Modest equipment and software investment growth is expected for the rest of 2016 after a dismal first two quarters, as persistent economic headwinds weigh on investment spending and confidence. Weak business confidence caused by rising anxiety about the political and economic environment, both in the United States and abroad, continue to drag down business investment and are likely to remain concerns in the coming months. Driven by negative growth in the first half of the year, we expect overall equipment and software investment to contract -0.5% in 2016 after expanding by 3.8% in 2015. However, several equipment verticals should see an improvement in the investment climate through the end of the year and into early 2017.
U.S. Capital Investment & Credit Markets: U.S. credit conditions remain healthy overall, with little change from last quarter in the areas of consumer credit supply and financial stress, and only a slight decrease in commercial credit supply. Business demand for credit remains generally weak but has not deteriorated significantly from last quarter. Meanwhile, consumer credit demand continues to grow at a moderate pace, reflecting high consumer confidence. The Fed opted to delay an interest rate hike in September, but we continue to expect one rate increase in 2016 (likely in December).
Overview of the U.S. Economy: At the beginning of Q4, the U.S. economy appears to be running at cross currents. Labor markets have been consistently strong this year, driving moderate gains in income, personal consumption expenditures, and housing. In contrast, business investment and manufacturing activity continue to disappoint, and government spending has thus far experienced a sustained contraction. Many economic indicators that normally correlate directly — for example, business hiring and business investment — are moving in opposite directions. While uncertainty is unusually high, we expect U.S. economic growth to pick up somewhat during the second half of the year. At the same time, a strong revival of growth is unlikely, and GDP growth for 2016 will fall short of expectations.