Industry Growth Forecast for 2017

The 2.8% equipment and software investment growth forecast for 2017 is a significant improvement over the minus-1.1% contraction in 2016. After negative growth for most of last year, equipment and software investment increased 1.7% in Q4 2016 and appears likely to resume a growth trajectory in 2017, particularly if elevated business confidence leads to increased business investment.

The U.S. economy appears to be on solid footing, despite an underwhelming finish to 2016 and slow start in 2017. Labor markets remain strong, which underlies healthy consumer spending, gradually accelerating wage growth, and mounting inflationary pressures. Business investment and manufacturing activity continue to lag, but industry confidence indices point to an improved investment picture during the second half of the year. Government spending is likely to have a neutral effect on economic growth this year. While exports may struggle, an improved international growth story may help increase demand for U.S. manufacturing goods. Overall, the U.S. economy is projected to grow 2.5% in 2017 — similar to 2014 and 2015, but a significant improvement over 2016.

Bolstered by a tightening labor market, healthy consumer spending, improved growth in international markets and the potential for broad-based domestic regulatory reform, the U.S. economy has reason for cautious optimism in 2017. However, economic headwinds, including risks associated with weak export growth, industrial sector sluggishness and government gridlock should temper expectations.

U.S. credit conditions remain solid overall, with little change from last quarter in consumer and business credit demand, and a slight downtick in credit supply as banks tighten lending standards. Business demand for credit remains generally weak, but may revive over the next two quarters. Meanwhile, growth in consumer credit demand has slowed since last quarter, despite record-high consumer confidence. The Federal Reserve has raised interest rates twice since the last Outlook, and will likely increase rates two or three more times this year.

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.

In addition, the new “Momentum Monitor Sector Matrix” provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Most equipment verticals should expect their growth outlook to improve in 2017 relative to 2016. Over the next three to six months:

• Agriculture machinery investment growth should remain sluggish.
• Construction machinery investment growth is likely to accelerate.
• Materials handling equipment investment is likely to grow at a slow but stable pace.
• All other industrial equipment investment growth should improve.
• Medical equipment investment growth may slow.
• Mining and oilfield machinery investment growth should improve.
• Aircraft investment growth may strengthen.
• Ships and boats investment growth is expected to expand.
• Railroad equipment investment growth should rebound.
• Trucks investment growth should strengthen.
• Computers investment growth may modestly improve.
• Software investment growth is likely to remain stable or slow modestly.

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 Q2 report is the first update to the 2017 Annual Outlook, and will be followed by two more quarterly updates before the publication of the 2018 Annual Outlook in December. The full report can be accessed at http://bit.ly/1O2GlVI.

The Equipment Leasing & Finance Foundation has released its Q2 update to the 2017 Equipment Leasing & Finance U.S. Economic Outlook, which lowered slightly its yearly equipment and software investment forecast to 2.8%, down from 3% growth forecast in its 2017 Annual Outlook released in December 2016.

The report predicts that equipment and software investment will improve in 2017 after a lackluster 2016, as renewed business confidence and firming energy prices lift the potential for business investment and capital expenditure spending while reducing uncertainty. The Foundation's report, which is focused on the $1 trillion equipment leasing and finance industry, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate. The report will be updated quarterly throughout 2017.

Key Findings

The 2.8% equipment and software investment growth forecast for 2017 is a significant improvement over the minus-1.1% contraction in 2016. After negative growth for most of last year, equipment and software investment increased 1.7% in Q4 2016 and appears likely to resume a growth trajectory in 2017, particularly if elevated business confidence leads to increased business investment.

The U.S. economy appears to be on solid footing, despite an underwhelming finish to 2016 and slow start in 2017. Labor markets remain strong, which underlies healthy consumer spending, gradually accelerating wage growth, and mounting inflationary pressures. Business investment and manufacturing activity continue to lag, but industry confidence indices point to an improved investment picture during the second half of the year. Government spending is likely to have a neutral effect on economic growth this year. While exports may struggle, an improved international growth story may help increase demand for U.S. manufacturing goods. Overall, the U.S. economy is projected to grow 2.5% in 2017 — similar to 2014 and 2015, but a significant improvement over 2016.

Bolstered by a tightening labor market, healthy consumer spending, improved growth in international markets and the potential for broad-based domestic regulatory reform, the U.S. economy has reason for cautious optimism in 2017. However, economic headwinds, including risks associated with weak export growth, industrial sector sluggishness and government gridlock should temper expectations.

U.S. credit conditions remain solid overall, with little change from last quarter in consumer and business credit demand, and a slight downtick in credit supply as banks tighten lending standards. Business demand for credit remains generally weak, but may revive over the next two quarters. Meanwhile, growth in consumer credit demand has slowed since last quarter, despite record-high consumer confidence. The Federal Reserve has raised interest rates twice since the last Outlook, and will likely increase rates two or three more times this year.

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.

In addition, the new “Momentum Monitor Sector Matrix” provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Most equipment verticals should expect their growth outlook to improve in 2017 relative to 2016. Over the next three to six months:

• Agriculture machinery investment growth should remain sluggish.
• Construction machinery investment growth is likely to accelerate.
• Materials handling equipment investment is likely to grow at a slow but stable pace.
• All other industrial equipment investment growth should improve.
• Medical equipment investment growth may slow.
• Mining and oilfield machinery investment growth should improve.
• Aircraft investment growth may strengthen.
• Ships and boats investment growth is expected to expand.
• Railroad equipment investment growth should rebound.
• Trucks investment growth should strengthen.
• Computers investment growth may modestly improve.
• Software investment growth is likely to remain stable or slow modestly.

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 Q2 report is the first update to the 2017 Annual Outlook, and will be followed by two more quarterly updates before the publication of the 2018 Annual Outlook in December. The full report can be accessed at http://bit.ly/1O2GlVI.