U.S. Economic Outlook

2022 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 signposts specific to the equipment finance industry and highlights key verticals, featured in the monthly Momentum Monitor, that identify turning points in their respective investment cycles. Each economic outlook is updated quarterly.

Report Summary - Equipment & Software Investment Outlook

Equipment and Software Investment:  Equipment and software investment rebounded strongly in the first quarter, growing 16% (annualized). Demand has been strong in several end-use markets, but businesses are contending with ongoing supply chain issues and rapidly rising interest rates, along with historic inflation that is threatening to derail the economy.

Momentum Monitor:  Despite economic headwinds, several equipment verticals remain in expansionary territory, particularly those related to transportation, oil/mining, and computers. However, others — including construction, agriculture, and software — appear likely to slow.

Manufacturing Sector: Manufacturing output has remained strong despite a variety of headwinds facing the industry. Supply chain turmoil and high energy prices remain problematic, and rising borrowing costs is a growing concern. Still, the data point to significant pent-up demand waiting to be fulfilled should supply chains loosen later this year.

Small Businesses: The Main Street outlook for the remainder of 2022 has worsened. Small firm sentiment has fallen as inflation has accelerated, and hiring has slowed. As the Fed pursues sharply tighter monetary policy to combat inflation, small businesses are likely to feel the effects of higher borrowing costs before they manifest elsewhere in the economy. Fortunately, SMB financial stress is quite low, which will help small firms weather a downturn if one should occur.

Fed Policy: The Fed is aggressively tightening monetary policy, which financial markets expect will continue in the coming months despite concerns of a growth pause or contraction.

U.S. Economy: Following negative GDP growth in Q1, downside risks continue to plague the U.S. economy. While the labor market is still strong and consumer spending has largely held up, the economic outlook has clearly soured, and things appear likely to get worse before they improve. Inflation remains the largest concern for consumers and businesses, and while the Fed is finally acting aggressively, it is likely to take several months before significant inflation abatement occurs. Meanwhile, higher rates are contributing to the slowdown in the housing market and may lead to rising consumer stress as credit card and auto loans become more expensive.

Looking ahead, we do not expect much near-term improvement in the U.S. economy. Another modest GDP contraction in Q2 is likely, and a looming recession in Europe means less demand for U.S. exports in Q3/Q4. Achieving the Fed’s desired “soft landing” will be challenging.