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 for the second consecutive quarter in Q2 but remained positive, primarily due to moderate annualized growth in software (equipment investment was essentially flat). Although a recession in the next six months appears unlikely, business conditions for the equipment finance industry are also unlikely to improve materially over the rest of the year, particularly for equipment verticals that serve the manufacturing sector.
Over the next three to six months:
- Agricultural Machinery investment growth should improve;
- Construction Machinery investment growth is likely to grow at a moderate pace;
- Materials Handling Equipment investment growth will likely remain weak;
- All Other Industrial Equipment investment growth is likely to remain modest;
- Medical Equipment investment growth should strengthen;
- Mining & Oilfield Machinery investment growth is likely to remain weak;
- Aircraft investment growth is likely to remain negative;
- Ships & Boats investment growth should remain weak;
- Railroad Equipment investment growth is unlikely to improve and may worsen;
- Trucks investment is expected remain positive;
- Computers investment will likely continue to weaken; and
- Software investment growth should continue expanding at a moderate pace.
U.S. Capital Investment & Credit Markets:
Capital spending has been noticeably weaker in 2019 and may slow further over the remainder of the year due to heightened trade uncertainty and industrial sector weakness. Credit market conditions, remain healthy, however, despite tightening credit conditions for commercial real estate and consumer loans and somewhat weaker demand for business loans. Financial stress has ticked up in 2019 by most measures but remains at healthy levels overall.
Overview of the U.S. Economy:
U.S. economic growth decelerated to 2.0% in the second quarter, down from to 3.1% growth in Q1. Consumer spending — the foundation of the U.S. economy — improved significantly and is a key driver of economic growth, but the manufacturing sector and business investment remain weak. Although robust consumer spending will likely remain a tailwind over the remainder of the year and the U.S. housing sector is showing signs of improvement, trade tensions with China, equity market volatility, and decelerating job creation are key potential risks as 2019 draws to a close.
Bottom Line for the Equipment Finance Sector:
Equipment and software investment growth slowed significantly during the first half of 2019, and we expect this trend to continue over the remainder of the year. Most measures of business confidence are well below 2018 highs and trending downward, while measures of consumer optimism have also declined in recent months (though they remain high by historical standards, reflecting a strong labor market and solid wage growth). Global growth expectations are also softening, which has negatively affected the U.S. manufacturing industry.
Overall, we expect the economy to grow 2.2% in 2019, down from our previous estimate of 2.5% and driven primarily by consumer spending. Meanwhile, we expect equipment and software investment to expand 3.9% this year, unchanged from our previous estimate.
December 5, 2019
November 14, 2019
October 28, 2019