Equipment and software investment growth cooled in the early months of 2023, resulting in the Equipment Leasing & Finance Foundation lowering its annual forecast for investment growth to 1.0%, according to the Q2 update to the 2023 Equipment Leasing & Finance U.S. Economic Outlook.
The new report also predicts sluggish economic growth in Q1 as the economy edges closer toward recession, which the Foundation continues to expect will begin during the second half of the year. Overall, annualized economic growth is forecast to be 0.7% in 2023, largely driven by a solid jump-off point at the end of last year.
The Foundation's report is focused on the $1.16 trillion equipment leasing and finance industry and highlights key trends in equipment investment, placing them in the context of the broader U.S. economic climate.
Nancy Pistorio, Foundation Chair and President of Madison Capital LLC, said, “Despite the U.S. economy ending 2022 with healthy growth and maintaining some momentum into early 2023, equipment and software investment softened to 2% annualized growth in Q4 and remains under pressure. The economy is still above water, but most indicators point to slowing growth, and many economists continue to expect a recession to begin later this year. Should that come to pass, I also expect the equipment finance industry will demonstrate its characteristic resilience, innovation, and resolve, and will continue to serve the financial needs of our customers regardless of the economic climate.”
Highlights from the Q2 update to the 2023 Outlook include:
The Federal Reserve continues to battle inflation, even raising interest rates immediately following the second and third largest bank failures in U.S. history. Interest rates are expected to rise higher than most market-implied forecasts expect this year as the Fed targets an inflation rate of 2%.
The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the Economic Outlook, 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. This month two are expanding, two are recovering, and eight verticals are weakening. Of special note for distribution and materials handling:
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 the U.S. macroeconomic outlook, credit market conditions, and key economic indicators. The Q2 report is the first update to the 2023 Economic Outlook, and will be followed by two more quarterly updates before the publication of the 2024 Economic Outlook in December.