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 expanded at a robust rate in the first half of 2018, driven by more preferable tax treatment and a general upswing in the U.S. economy. However, growth slowed in the third quarter and recent data point to a continuation of this trend, providing a weak jumping off point for 2019. The economy remains generally healthy, but the strong growth achieved in Q2 and Q3 is unlikely to be repeated in 2019 as headwinds build. Nonetheless, business conditions in the equipment finance industry remain favorable, and investment in the majority of equipment verticals should post moderate growth for at least the first half of the year.
Over the next three to six months:
- Agricultural Machinery investment growth is likely to slow
- Construction Machinery investment growth should hold steady;
- Materials Handling Equipment investment is likely to expand at a moderate rate;
- All Other Industrial Equipment investment growth will likely remain weak and may contract;
- Medical Equipment investment growth is expected to slow;
- Mining & Oilfield Machinery investment growth will likely continue to decline;
- Aircraft investment growth should improve;
- Ships & Boats investment growth should accelerate;
- Railroad Equipment investment growth may increase;
- Trucks investment growth is expected to slow;
- Computers investment growth will likely remain stable; and
- Software investment growth should remain solid.
U.S. Capital Investment & Credit Markets:
Capital spending continued to expand in 2018, though growth moderated over the course of the year. Going into 2019, the economy’s underlying fundamentals should keep capital investment in positive territory, but growth rates are likely to decelerate. Credit market conditions remain generally healthy, with an increase in the supply of credit in the third quarter and subdued financial stress levels. However, demand for credit appears to be weakening (especially among businesses) and some business confidence indices are beginning to slip — which could be a harbinger for a business investment slowdown during the second half of the year.
Overview of the U.S. Economy:
The U.S. economy accelerated in 2018, spurred by stronger growth in business investment, a historically healthy labor market, lower tax rates, and increased government spending. Consumers have been the main driver of growth over the past year, and near-record consumer confidence should keep spending levels elevated through at least the first half of 2019. However, residential investment is likely to remain weak, mounting trade frictions will constrain U.S. exports, and the global economy appears to be losing steam. Overall, while the U.S. economy remains healthy, growth is likely to soften in 2019 compared to the previous 12 months.
Bottom Line for the Equipment Finance Sector:
After a breakout year in 2018 during which the economy had its strongest performance since 2015 and equipment and software investment posted its fastest growth since 2012, the economy is on good footing heading into the new year. Despite recent slippage, business and consumer confidence remain elevated and the labor market is strong. However, a weakening global outlook and trade-related headwinds will likely dampen U.S. growth, particularly in the second half of the year.
Overall, we expect the economy to grow 2.3% in 2019 (down from an estimated 2.9% in 2018), while we project that equipment and software investment will expand 4.1% (down from an estimated 7.9% in 2018).
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