Industry Growth for 2016 Forecast to -0.5%

At the beginning of Q4, the U.S. economy appears to be running at cross-currents. Labor markets have been consistently strong this year, driving moderate gains in income, personal consumption expenditures and housing. In contrast, business investment and manufacturing activity continue to disappoint, and government spending has thus far experienced a sustained contraction. Many economic indicators that normally correlate directly — for example, business hiring and business investment — are moving in opposite directions. While uncertainty is unusually high, U.S. economic growth is expected to pick up somewhat during the second half of the year. At the same time, a strong revival of growth is unlikely, and GDP growth for 2016 will fall short of expectations.

U.S. credit conditions remain healthy overall, with little change from last quarter in the areas of consumer credit supply and financial stress, and only a slight decrease in commercial credit supply. Business demand for credit remains generally weak but has not deteriorated significantly from last quarter. Meanwhile, consumer credit demand continues to grow at a moderate pace, reflecting high consumer confidence. The Fed opted to delay an interest rate hike in September, but one rate increase is expected in 2016 (likely in December).

Twelve Verticals

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals forecasts that investment in most verticals is likely to remain relatively weak through the end of the year. Several equipment verticals, however, should see an improvement in the investment climate through the end of the year and into early 2017. Over the next three to six months:

• Agriculture machinery investment growth will likely remain subdued.
• Construction machinery investment growth may rebound modestly.
• Materials handling equipment investment is likely to strengthen.
• All other industrial equipment investment growth is expected to rebound.
• Medical equipment investment should remain solid.
• Mining and oilfield machinery investment growth will likely remain sluggish.
• Aircraft investment growth is likely to strengthen.
• Ships and boats investment growth should remain muted.
• Railroad equipment investment growth is poised to rebound.
• Trucks investment growth should improve.
• Computers investment growth should remain modest.
• Software investment growth should remain solid.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides a three-to-six month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. The full report can be accessed at http://bit.ly/1O2GlVI.

In what began as a year with a forecast of modest growth, The Equipment Leasing & Finance Foundation (ELFA) has just released its Q4 update to the 2016 Equipment Leasing & Finance U.S. Economic Outlook, reducing the year's growth expectations to -0.5%, marking a steady decline in growth forecast for the year.

Key Findings

Equipment and software investment will remain flat or contract slightly in 2016, as continued global headwinds and political uncertainty limit business confidence, particularly in the manufacturing, export and energy sectors. However, there is some evidence that the investment decline in those sectors may have bottomed out, and small improvements may occur in late 2016 or early 2017. Despite the potential for a modest second-half rebound, poor performance in Q1 and Q2 virtually guarantee that 2016 will be a disappointing year for growth in both the overall economy and business investment. ELFA projects 1.6% GDP growth for 2016, while equipment and software investment is likely to contract by -0.5%.

At the beginning of Q4, the U.S. economy appears to be running at cross-currents. Labor markets have been consistently strong this year, driving moderate gains in income, personal consumption expenditures and housing. In contrast, business investment and manufacturing activity continue to disappoint, and government spending has thus far experienced a sustained contraction. Many economic indicators that normally correlate directly — for example, business hiring and business investment — are moving in opposite directions. While uncertainty is unusually high, U.S. economic growth is expected to pick up somewhat during the second half of the year. At the same time, a strong revival of growth is unlikely, and GDP growth for 2016 will fall short of expectations.

U.S. credit conditions remain healthy overall, with little change from last quarter in the areas of consumer credit supply and financial stress, and only a slight decrease in commercial credit supply. Business demand for credit remains generally weak but has not deteriorated significantly from last quarter. Meanwhile, consumer credit demand continues to grow at a moderate pace, reflecting high consumer confidence. The Fed opted to delay an interest rate hike in September, but one rate increase is expected in 2016 (likely in December).

Twelve Verticals

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals forecasts that investment in most verticals is likely to remain relatively weak through the end of the year. Several equipment verticals, however, should see an improvement in the investment climate through the end of the year and into early 2017. Over the next three to six months:

• Agriculture machinery investment growth will likely remain subdued.
• Construction machinery investment growth may rebound modestly.
• Materials handling equipment investment is likely to strengthen.
• All other industrial equipment investment growth is expected to rebound.
• Medical equipment investment should remain solid.
• Mining and oilfield machinery investment growth will likely remain sluggish.
• Aircraft investment growth is likely to strengthen.
• Ships and boats investment growth should remain muted.
• Railroad equipment investment growth is poised to rebound.
• Trucks investment growth should improve.
• Computers investment growth should remain modest.
• Software investment growth should remain solid.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides a three-to-six month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. The full report can be accessed at http://bit.ly/1O2GlVI.