Investment in equipment and software is expected to contract -0.5 percent in 2016, according to the Q4 update to the 2016 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. The Foundation lowered its forecast to -0.5 percent, down from 0.9 percent growth forecast in its Q3 Update to the 2016 Annual Outlook released in July. After contracting during the first two quarters, the new report forecasts modest equipment and software investment growth for the rest of 2016, as economic headwinds continue to weigh on investment spending and confidence. The Economic Outlook, 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, said, “The softer growth numbers projected for 2016 reflect overall hesitancy on the part of business decision-makers to invest in equipment and software until the cloud that is the U.S. election cycle clears in November. A potential wild card impacting 2017 investment growth is the Federal Reserve’s decision whether to increase short-term interest rates prior to year-end.”
Highlights from the study include:
• Overall equipment and software investment is expected to contract -0.5% in 2016 after expanding by 3.8% in 2015. The report predicts that after a slow start to the year, there is potential for a modest rebound in the second half of the year. However, poor performance in Q1 and Q2 virtually guarantee that 2016 will be a disappointing year for growth in both the overall economy and business investment.
• In 2016, the U.S. economy is likely to experience modest growth of 1.6% overall, as strong labor markets, consumer spending, housing growth, and a somewhat weaker dollar collectively drive growth, but are largely offset by weak business investment and government spending.
• Business demand for credit remains generally weak but has not deteriorated significantly from last quarter. The Federal Reserve Board opted to delay an interest rate hike in September, but a rate increase is expected in late 2016.
• The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report and tracks 12 equipment and software investment verticals, forecasts that several equipment verticals should see an improvement in the investment climate through the end of the year and into next year. Over the next three to six months:
o Agriculture machinery investment growth will likely remain subdued.
o Construction machinery investment growth may rebound modestly.
o Materials handling equipment investment is likely to strengthen.
o All other industrial equipment investment growth is expected to rebound.
o Medical equipment investment should remain solid.
o Mining and oilfield machinery investment growth will likely remain sluggish.
o Aircraft investment growth is likely to strengthen.
o Ships and boats investment growth should remain muted.
o Railroad equipment investment growth is poised to rebound.
o Trucks investment growth should improve.
o Computers investment growth should remain modest.
o Software investment growth should remain solid.
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 Q4 report is the third and final update to the 2016 Annual Outlook.