Q3 Economic Outlook: Equipment and software investment will increase in second half of 2013

Growth revised downward, but should remain steady amid strong economic fundamentals.

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Investment in equipment and software is expected to grow 4.8% in 2013, according to the Q3 update to the 2013 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation.

The Foundation decreased its 2013 forecast from the 5.6% growth predicted in its Q2 Outlook, due to slightly slower than expected growth in investment in the first and second quarters. However, the Q3 report predicts equipment investment will grow steadily over the next six months across most verticals due to reduced policy uncertainty and strong underlying economic fundamentals. The report, which is focused on the $725 billion equipment leasing and finance industry, forecasts equipment investment and capital spending in the United States and evaluates the effects of various related and external factors in play currently and into the foreseeable future.

According to the Foundation report, the U.S. economy is in its strongest position since the 2008-09 recession, but growth remains subpar. The economy continues to be buffeted by multiple headwinds, including high oil prices, weak global growth, fiscal consolidation and uncertainty about future fiscal reforms and other federal policies. However, the Foundation reports that the underlying fundamental growth drivers of the U.S. economy are in better shape than in recent years. The report predicts growth will pick up in the second half of the year due to an improving housing market and auto sales, an energy renaissance, reshoring of manufacturing, improving credit availability and rising employment.

William G. Sutton, CAE, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association, said, “In the Q3 U.S. Economic Outlook, we have adjusted our equipment investment growth projection to reflect the current environment. With the housing and energy sectors continuing to hold strong, we still expect the second half of the year to show growth, albeit more modestly than originally anticipated.”

Highlights from the study include:
● The U.S. economy is expected to generate positive but modest growth of 2.0 percent in 2013, a pace similar to 2012.
● Equipment and software investment slowed in Q1 2013 to 4.1% (annualized), reflecting some of the headwinds facing the U.S. economy. In Q1, the sector was driven by strength in computers and software and in construction equipment. Q2 looked slightly weaker than Q1, but growth is expected to pick up in the second half of the year, with an overall forecast of 4.8% year-over-year growth in equipment and software investment in 2013.
● Credit market conditions continue to improve, and many indicators have returned to levels not seen since the onset of the recession.

Trends in equipment investment include:
● Agriculture equipment investment is expected to average near-flat growth on a year-over-year basis over the next three to six months.
● Computers and software investment is expected to accelerate to more normal growth (5% to 8%) in the second half of the year.
● Construction equipment investment continued growing rapidly, increasing 56 percent year-over-year in Q1 2013, boosted by a recovering housing sector. Above-average investment growth is expected to continue through the rest of the year.
● Industrial equipment investment is expected to see average growth (1% to 3% year-over-year) through 2013.
● Medical equipment investment will likely continue to stagnate, with potential to pick up later in the year.
● Transportation equipment investment slowed for the third consecutive quarter, but some improvement in its leading indicators suggests that growth will pick up slightly in 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 released in December 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 Q3 report is the second update to the 2013 Annual Outlook, and will be followed by one more quarterly update before the publishing of the 2014 Annual Outlook in December.

Download the full report at www.leasefoundation.org/IndRsrcs/EO/.

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