U.S. Economic Outlook

2019 Equipment Leasing & Finance U.S. Economic Outlook

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. Each economic outlook is updated quarterly.

Equipment & Software Investment Outlook

Equipment and software investment growth decelerated in Q1 but remained positive due to the second-fastest growth in software investment since 2009. Meanwhile, equipment investment fell 1.0% in the first quarter, the first quarterly contraction since early 2016. Business conditions for the equipment finance industry eased in the first half of the year as the U.S manufacturing sector weakened, and investment growth in several key verticals is expected to slow or contract in the second half of 2019.

Over the next three to six months:

  • Agricultural Machinery investment growth is likely to remain modestly positive;
  • Construction Machinery investment growth is likely to further weaken and potentially stall;
  • Materials Handling Equipment investment is likely to weaken and may turn negative;
  • All Other Industrial Equipment  investment growth is likely to weaken and may stall;
  • Medical Equipment investment growth should grow at a moderate pace;
  • Mining & Oilfield Machinery investment growth is likely to remain steady;
  • Aircraft investment growth is likely to remain negative;
  • Ships & Boats investment growth should remain sluggish and may stall;
  • Railroad Equipment investment growth is unlikely to improve and may worsen;
  • Trucks investment is expected to grow moderately;
  • Computers investment will likely continue to weaken, potentially into negative territory; and
  • Software investment growth should remain solid.

U.S. Capital Investment & Credit Markets:

Capital spending eased in the beginning of 2019, consistent with declining macroeconomic fundamentals. Business investment faces further downside risk if the industrial sector continues to slow and trade relations remain turbulent. Although banks continue to tighten lending standards to consumers amid waning credit demand among businesses and consumers, overall credit market conditions remain mostly healthy. Financial stress remains relatively low by historical standards, though both delinquencies and charge-offs are on the rise.

Overview of the U.S. Economy:

The U.S. economy grew at a healthy 3.1% pace in the first quarter, exceeding expectations. However, despite the solid headline number, there are reasons to be concerned about the economy’s core, particularly consumer spending and business fixed investment. Trade frictions are undoubtedly contributing to the softness in the U.S. manufacturing sector, which  continued to struggle in Q2 and does not appear to be on the verge of a rebound. Though domestic oil production has been a key bright spot for the U.S. economy and the increasingly dovish Federal Reserve has helped buoy financial markets, there are several risk factors that merit close attention for the rest of the year, including the efficacy of China’s efforts to stimulate its economy, the divergence between small- and big- business optimism, and the potential for a protracted slowdown in consumer spending later this year.

Bottom Line for the Equipment Finance Sector:

Equipment and software investment growth is likely to continue
slowing in the second half of 2019. Q1 showed a growing divergence between software investment, which surged, and equipment investment, which contracted. Consumer confidence has eased this year while consumer spending has moderated, large businesses are showing signs of pulling back (though small businesses remain upbeat), and the global growth picture continues to weaken. In light of stronger-than expected growth in Q1, we now expect the economy to grow 2.5% in 2019, up from our previous estimate of 2.2%. Meanwhile, we project that equipment and software  investment will expand 3.9% this year, down from our previous estimate of 4.5%.