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.
U.S. Capital Investment & Credit Markets: Global uncertainty is weighing on credit demand and supply, although U.S. credit conditions remain at generally healthy levels. Despite a recent uptick in financial stress, we see little evidence of major financial risks in 2016. Turbulence in the world economy and financial markets has invited greater caution from businesses and consumers, yet both firms and households are expected to gradually increase their borrowing as these headwinds slowly fade. Acknowledging increased risks from abroad, the Fed held interest rates unchanged this spring. However, the Fed remains prepared to slowly raise rates this year, which may pull forward some investment and slightly expand margins for equipment finance firms.
Overview of the U.S. Economy: Driven by solid fundamentals, we expect the U.S. economy to expand 2.3% in 2016, roughly in line with the pace of growth over the past two years. Continued gains in the labor market and income, along with service sector strength, should drive growth this year. Weakness in the manufacturing and energy sectors is likely to persist, and a soft global economy (particularly China) will hurt U.S. exports. The economic "pivot" which began in 2015 will continue this year: manufacturing, energy, and exports have flipped from growth drivers to drags, while other previously-lagging sectors are now fueling economic expansion.
Equipment and software investment is likely to expand modestly in 2016, as continued global headwinds limit business confidence and spending (particularly in the manufacturing and export sectors). Reflecting soft business investment, activity in equipment leasing and finance may moderate somewhat this year. However, solid fundamentals — including consumer spending and service sector strength — point to positive economic expansion in 2016, and the U.S. economy is expected to weather a slowdown in the global economy. Overall, we project 2.3% GDP growth in 2016, while equipment and software investment growth is likely to slow to around 2.7%.