Research

2017 Equipment Leasing & Finance U.S. Economic Outlook: Q2 Update

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.

2016 Economic Outlook

Summary:

Equipment & Software Investment Outlook:

Equipment and software investment growth is expected to improve in 2017 after a lackluster 2016, driven by strong gains in business confidence and robust residential housing investment. While the industrial sector continues to lag, strong labor markets, firming wages, stable energy prices, and improved economic prospects overseas should provide a positive growth environment for U.S. businesses. Most equipment verticals should expect their growth outlook to improve relative to last year:

  • Agriculture Machinery investment growth should remain sluggish over the next two quarters.
  • Construction Machinery investment growth is likely to accelerate over the next three to six months.
  • Materials Handling Equipment investment is likely to grow at a slow but stable pace over the next three to six months.
  • All Other Industrial Equipment investment growth should improve over the next three to six months.
  • Medical Equipment investment growth may slow over the next three to six months.
  • Mining & Oilfield Machinery investment growth should improve over the next three to six months.
  • Aircraft investment growth may strengthen over the next three to six months.
  • Ships & Boats investment growth is expected to expand in the next three to six months.
  • Railroad Equipment investment growth should rebound over the next three to six months.
  • Trucks investment growth should strengthen over the next two quarters.
  • Computers investment growth may modestly improve over next three to six months.
  • Software investment growth is likely to remain stable or slow modestly over the next three to six months.

U.S. Capital Investment & Credit Markets

U.S. credit conditions remain solid overall, with little change from last quarter in consumer and business credit demand, and a slight downtick in credit supply as banks tighten lending standards. Business demand for credit remains generally weak, but may revive over the next two quarters. Meanwhile, growth in consumer credit demand has slowed since last quarter, despite record-high consumer confidence. The Federal Reserve has raised interest rates twice since the last Outlook, and will likely increase rates two or three more times this year.

Overview of the U.S. Economy

The U.S. economy appears to be on solid footing, despite an underwhelming finish to 2016 and slow start in 2017. Labor markets remain strong, which underlies healthy consumer spending, gradually accelerating wage growth, and mounting inflationary pressures. Business investment and manufacturing activity continue to lag, but industry confidence indices point to an improved investment picture during the second half of the year. Government spending is likely to have a neutral effect on economic growth this year, while exports may struggle — although an improved international growth story may help increase demand for U.S. manufacturing goods. While a strong growth surge is unlikely, the U.S. economy seems to be on track for moderate growth after a sluggish 2016.

Bottom Line for the Equipment Finance Sector:

Equipment and software investment should improve in 2017, as renewed business confidence and firming energy prices lift the potential for business investment and capex spending while reducing uncertainty. The growth experienced in Q4 2016 marked the first positive quarter after a year of contraction and leaves the equipment finance sector well-positioned for a decent rebound in 2017. We project 2.5% GDP growth this year (slightly above consensus estimates), while equipment and software investment is projected to expand by 2.8%.

Independent, forward-looking resources for the equipment finance industry.