ELFF 2016 Economic Outlook forecasts 4.4% growth in equipment and software investment

Investment in equipment and software is expected to grow 4.4% in 2016, according to the Annual 2016 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation.

The moderate growth forecast reflects economic crosswinds, as weakness in the global economy (particularly China), low commodity prices, and a strong dollar are diminishing businesses’ incentive to invest, while a strengthening U.S. economy and elevated propensity to finance should propel growth in the equipment finance sector. The Foundation’s report, which is focused on the $1.046 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 2016.

William G. Sutton, CAE, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association, said, “Building on the forecast that the equipment finance industry will surpass the $1 trillion mark in 2015, this Outlook for 2016 projects decent, but not robust, equipment finance growth in the coming year. Navigating a changing marketplace, the equipment finance industry will adapt to economic and policy shifts as it always has—and will continue to find new opportunities for growth.” 

Highlights from the study include:

• As domestic strength offsets global headwinds, U.S. GDP growth is expected to tick up to 2.8% in 2016 from 2.6% in 2015. Over the last 12 months, several key drivers of growth in recent years faltered, while other sectors that have lagged began to pick up steam. This fundamental shift will underpin U.S. economic expansion in 2016.

• The U.S. credit system is healthy and financial stress is muted, limiting financial risks going into next year. Solid U.S. economic data are setting the stage for gradual Fed interest rate increases in 2016, which may alleviate spread compression for equipment lessors.

• Equipment and software investment growth rebounded to a 7.4% pace in Q3 2015 from a 1.7% annual pace in Q2 2015, but investment is up only 2.5% year-on-year—the slowest annual growth rate in two years. Continued moderate growth in equipment and software investment is expected in Q4 2015 and into 2016.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals. In 2016, as in 2015, negative global trends are expected to hurt certain equipment verticals, while signs of strength in the U.S. economy will fuel continued gains in others:

• Agriculture machinery investment growth will likely remain weak over the next three to six months.

• Construction machinery investment growth may slow somewhat, yet remain solid over the next three to six months.

• Materials handling equipment investment growth should remain weak over the next three to six months.

• All other industrial equipment investment growth is likely to slow over the next three to six months.

• Medical equipment investment growth is expected to stabilize over the next three to six months.

• Mining and oilfield machinery investment growth should remain strongly negative over the next three to six months.

• Aircraft investment growth may increase over the next three to six months.

• Ships and boats investment growth is poised to strengthen in the next three to six months.

• Railroad equipment investment growth is likely to remain negative over the next three to six months.

• Trucks investment growth should remain steady over the next three to six months.

• Computers investment growth rates appear set to increase moderately over the next three to six months.

• Software investment growth may strengthen over the next three to six months.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economics 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 report will be updated quarterly throughout 2016.

Click here to download the full report.