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 ended the year on a high note, expanding 7.4% in the fourth quarter and 8.1% rate on the year — the best annual performance since 2012. Although the equipment finance industry is off to a slow start this year, business conditions remain generally favorable and we expect the majority of equipment verticals to post positive growth in 2019. However, as the stimulative effects of tax reform begin to wane and the U.S. manufacturing sector continues to face headwinds, equipment and software investment is likely to slow in 2019.

Over the next three to six months:

  • Agricultural Machinery investment growth is likely to slow;
  • Construction Machinery investment growth should remain weak and may contract;
  • Materials Handling Equipment investment is likely to expand at a modest rate;
  • All Other Industrial Equipment  investment growth will likely remain weak and may stall;
  • Medical Equipment investment growth is expected to slow;
  • Mining & Oilfield Machinery investment growth may improve, but a strong rebound appears unlikely;
  • Aircraft should expand at a moderate rate;
  • Ships & Boats investment is likely to remain weak;
  • Railroad Equipment investment growth is likely to remain negative;
  • Trucks investment is expected to expand at a moderate rate;
  • Computers investment will likely grow modestly; and
  • Software investment growth should slow.

U.S. Capital Investment & Credit Markets:

Capital spending exceeded expectations at the close of 2018, despite some weakening in the underlying economic fundamentals. However, business investment faces significant downside risk in the first half of 2019 given the recent slowdown in the industrial sector and weaker global growth. Credit market conditions remain mostly healthy, though banks continue to tighten lending standards for some loans and demand for credit has weakened among both businesses and consumers. Financial stress remains in check, however, as delinquencies and charge-offs are still well below historical norms.

Overview of the U.S. Economy:

After achieving 2.9% growth in 2018 — tied with 2015 for the strongest year of growth during the current business cycle — the U.S. economy appears to have slowed in early 2019. Consumer spending should continue to serve as the backbone for economic growth, but business investment appears likely to slow after a Q4 rebound due to lower oil prices, easing confidence, and waning global demand. The combination of rising wages and a more dovish Fed should keep the economy growing and prevent a stall-out this year, but weaknesses in the U.S. manufacturing sector and from Europe and China are significant concerns. Recent declines in business and consumer confidence and the ongoing negotiations with China on trade policy are two wildcards that should be closely monitored.

Bottom Line for the Equipment Finance Sector:

After two consecutive solid years, equipment and software investment growth is likely to slow in 2019. Business and consumer confidence have fallen from the highs experienced last year in the wake of tax reform but remain elevated, and a strong labor market and rising wages should lead to solid consumer spending growth. However, the global outlook continues to weaken, and trade-related headwinds will dampen U.S. growth prospects, particularly in the manufacturing sector. Overall, we expect the economy to grow 2.2% in 2019 (down slightly from our annual outlook published in December), while equipment and software investment is projected to expand 4.5% this year (up from our previous estimate of 4.1%).