Research

2016 Equipment Leasing & Finance U.S. Economic Outlook

Look Ahead to the Second Half of the Year With the Q3 Webcast

On July 20, 2016 at 1:00 PM (EDT), the Foundation hosted a webcast on the findings from the Q3 - 2016 Economic Outlook report. Our research partners from Keybridge presented the highlights from the Outlook report and tools from the Applied Economics Handbook to help you leverage data and make better business decisions. The Applied Economic Handbook and Q3 - Economic Outlook Report are available in the Foundation's Online Library by logging in with your ELFA username and password.

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:

Modest equipment and software investment growth is expected to continue this year, as persistent headwinds undermine business spending and confidence. Specifically, continued slow growth in the global economy, a contraction in trade, political uncertainty, and low commodity prices have curtailed business investment for the past year and are likely to remain obstacles in the months ahead. Given recent data and current momentum, we expect equipment and software investment to increase by just 0.9% this year, a significant slowdown from last year�s 3.8% growth. Investment in most equipment and software verticals is likely to remain relatively weak through the end of the year.

  • Agriculture Machinery investment growth should remain weak over the next three to six months.
  • Construction Machinery investment growth will likely remain sluggish over the next three to six months.
  • Materials Handling Equipment investment should grow slowly over the next three to six months.
  • All Other Industrial Equipment investment growth is likely to weaken over the next three to six months.
  • Medical Equipment investment should grow modestly over the next three to six months.
  • Mining & Oilfield Machinery investment growth will likely remain negative over the next three to six months.
  • Aircraft investment growth may remain weak in the next three to six months, although growth is historically volatile.
  • Ships & Boats investment growth will likely slow in the next three to six months.
  • Railroad Equipment investment growth is likely to remain negative over the next three to six months.
  • Trucks investment growth should be subdued over the next three to six months, but a turnaround may be on the horizon.
  • Computers investment growth is likely to grow modestly over next three to six months.
  • Software investment growth is poised to remain solid over the next three to six months.

U.S. Capital Investment & Credit Markets: Global uncertainty is weighing on credit demand and supply, but U.S. credit conditions remain at generally healthy levels. While financial stress has fallen and consumer demand for credit has increased considerably, uncertainty in the world economy and financial markets is contributing to weak business confidence and sluggish business investment. The Fed has made several decisions to delay interest rate hikes, citing global headwinds. However, we still expect the Fed to raise interest rates later this year, which may pull forward some investment and slightly expand margins for equipment finance firms.

Overview of the U.S. Economy: Supported by mostly decent fundamentals, we expect the U.S. economy to expand 2.2% in 2016, slightly slower than the pace of growth over the past two years. Consumer spending, driven by increases in real disposable income, will be a significant driver of growth in 2016, and tighter labor markets and solid residential housing gains are primed to provide an extra boost. However, weaknesses in the manufacturing and energy sectors are ongoing impediments to growth and will likely persist for the rest of the year. Thus far in 2016, predictions of an economic �pivot� from 2015 have proven to be accurate: manufacturing and exports have transitioned from growth drivers to drags, while consumption and housing activity continue to strengthen.

Bottom Line for the Equipment Finance Sector:

Equipment and software investment is likely to experience slow growth in 2016, as continued global headwinds and political risk limit business confidence, particularly in the manufacturing, export, and energy sectors. Reflecting this weakness, activity in equipment leasing and finance should slow in the second half of 2016. However, consumer spending will provide a lift to the overall U.S. economy, which is poised to continue expanding � albeit at a slightly slower pace than the last two years. We do not expect a recession in 2016. Overall, we project 2.2% GDP growth for 2016, with equipment and software investment projected to post only 0.9% growth.

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