Industry Growth Trending Up for the Year

Ralph Petta, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association (ELFA), noted: “Continued strong fundamentals in the U.S. economy together with low interest rates and an optimistic business sector provide the ingredients for a vibrant, healthy equipment finance industry in 2017. Despite Washington policy makers' inability to coalesce around major initiatives designed to spur economic growth even further, equipment finance professionals in a variety of markets report strong and stable origination volume. Certain distressed industry sectors are slowly recovering, giving rise to a positive outlook for the remainder of the year.”

Key Findings

Capital spending remains on solid footing as businesses are confident and interest rates remain low. Overall, equipment and software investment is expected to expand by 4.3% in 2017 after a solid growth in both Q1 and Q2 of 4.5% and 8.3%, respectively.

U.S. credit conditions remain decent, with virtually no change in supply from last quarter and a moderate weakening in credit demand for both consumers and businesses. The Federal Reserve signaled its intention to reduce its balance sheet and continue to tighten credit conditions over the next several months. However, gradual increases to interest rates are not expected to crimp capital spending growth.

The U.S. economy remains reasonably solid, despite a weak first quarter and an expected hit to third-quarter growth caused by Hurricanes Harvey and Irma. Labor markets are strong, consumer spending continues to grow at a healthy pace, and business investment has rebounded from its dismal performance last year. However, residential investment has disappointed (particularly in the second quarter), while reduced government spending will detract somewhat from U.S. growth prospects. Overall, the U.S. economy is projected to grow 2.3% — a slight decrease from the Q3 forecast, yet well above 2016's 1.5% growth rate.

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 “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 may improve modestly.
• Construction machinery investment growth is likely to decelerate.
• Materials handling equipment investment is expected to strengthen.
• All other industrial equipment investment should continue to improve.
• Medical equipment investment growth is likely to continue to slow down.
• Mining and oilfield machinery investment growth will continue to rebound, though growth rates may peak soon.
• Aircraft investment growth may decelerate.
• Ships and boats investment growth is likely to strengthen.
• Railroad equipment investment growth should improve, though recent negative movement is notable and should be monitored.
• Trucks investment growth is expected to rebound.
• Computers investment growth should remain solid.
• Software investment growth should remain steady.

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 Q4 report is the final update to the 2017 Annual Outlook 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 Q4 update to the 2017 Equipment Leasing & Finance U.S. Economic Outlook, which increased its yearly equipment and software investment forecast to 4.3%, up from 3.6% forecast in the Q3 Outlook.

The more favorable forecast is based on a combination of continued elevated business confidence, a recovering oil sector, and the release of pent-up demand following lackluster investment growth in 2016. The report predicts that equipment and software investment will improve significantly from last year's performance, even as uncertainties relating to tax and trade policy, along with heightened geopolitical tensions, create a mix of opportunities and risks.

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.

Ralph Petta, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association (ELFA), noted: “Continued strong fundamentals in the U.S. economy together with low interest rates and an optimistic business sector provide the ingredients for a vibrant, healthy equipment finance industry in 2017. Despite Washington policy makers' inability to coalesce around major initiatives designed to spur economic growth even further, equipment finance professionals in a variety of markets report strong and stable origination volume. Certain distressed industry sectors are slowly recovering, giving rise to a positive outlook for the remainder of the year.”

Key Findings

Capital spending remains on solid footing as businesses are confident and interest rates remain low. Overall, equipment and software investment is expected to expand by 4.3% in 2017 after a solid growth in both Q1 and Q2 of 4.5% and 8.3%, respectively.

U.S. credit conditions remain decent, with virtually no change in supply from last quarter and a moderate weakening in credit demand for both consumers and businesses. The Federal Reserve signaled its intention to reduce its balance sheet and continue to tighten credit conditions over the next several months. However, gradual increases to interest rates are not expected to crimp capital spending growth.

The U.S. economy remains reasonably solid, despite a weak first quarter and an expected hit to third-quarter growth caused by Hurricanes Harvey and Irma. Labor markets are strong, consumer spending continues to grow at a healthy pace, and business investment has rebounded from its dismal performance last year. However, residential investment has disappointed (particularly in the second quarter), while reduced government spending will detract somewhat from U.S. growth prospects. Overall, the U.S. economy is projected to grow 2.3% — a slight decrease from the Q3 forecast, yet well above 2016's 1.5% growth rate.

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 “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 may improve modestly.
• Construction machinery investment growth is likely to decelerate.
• Materials handling equipment investment is expected to strengthen.
• All other industrial equipment investment should continue to improve.
• Medical equipment investment growth is likely to continue to slow down.
• Mining and oilfield machinery investment growth will continue to rebound, though growth rates may peak soon.
• Aircraft investment growth may decelerate.
• Ships and boats investment growth is likely to strengthen.
• Railroad equipment investment growth should improve, though recent negative movement is notable and should be monitored.
• Trucks investment growth is expected to rebound.
• Computers investment growth should remain solid.
• Software investment growth should remain steady.

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 Q4 report is the final update to the 2017 Annual Outlook before the publication of the 2018 Annual Outlook in December. The full report can be accessed at http://bit.ly/1O2GlVI.