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Q3 economic outlook forecasts expanded 3.6% growth in equipment and software investment in 2017

Investment in equipment and software is expected to grow 3.6 percent in 2017, according to the Q3 update to the 2017 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. The Foundation revised its 2017 equipment and software investment growth forecast up from 2.8% growth expected in its Q2 update to the 2017 Economic Outlook released in April. The report predicts that equipment and software investment should continue to bounce back from a lackluster 2016 after a solid start in the first quarter of 2017, driven by overall improvements in business confidence and a more positive outlook for the industrial sector. 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. The report will be updated quarterly throughout 2017.

Ralph Petta, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association, said, “Stronger-than-expected first quarter capital investment points to a more robust forecast for the year. This is borne out not only by industry performance metrics, but also by anecdotal reports from leasing and finance executives in a variety of key industry sectors. Headwinds emanating from Washington, DC may alter this trajectory as the summer wears on, but, for now, it appears that 2017 growth should eclipse that in 2016."

Highlights from the study include:

•   Equipment and software investment experienced a bright first quarter of 2017 growing at an annualized rate of 7.4%, its strongest pace in two years. Stabilized oil prices, improved business confidence and credit market stability should lead to solid investment growth of 3.6% in 2017, a significant improvement over 2016.

•   U.S. economic growth in the second half of 2017 is likely to yield a notable improvement on first quarter growth of just 1.4% due to a rebound in consumer spending, solidly positive business investment and a strengthening global economy. Overall, the U.S. economy is projected to grow 2.4% in 2017—a slight downgrade from 2.5% in the Foundation’s Q2 forecast, but still a significant improvement over 1.6% growth in 2016.

•   Though 2017 is shaping up to be a better year for U.S. economic growth than 2016, headwinds to watch include U.S. trade policy uncertainty and budget battles. Continued political gridlock also makes it increasingly unlikely that Congress will agree on major pro-growth legislation such as tax cuts or infrastructure spending in 2017.

•   The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals. The Momentum Monitor Sector Matrix provides a customized data visualization of current values of each vertical based on recent momentum and historical strength. Of the 12 verticals, 11 posted positive annualized growth in Q1. Over the next three to six months:
o   Agriculture machinery investment may grow modestly on a year-over-year basis.
o   Construction machinery investment growth is likely to improve somewhat.
o   Materials handling equipment investment should improve.
o   All other industrial equipment investment should maintain a slow growth trajectory.
o   Medical equipment investment growth is likely to weaken.
o   Mining and oilfield machinery investment growth should continue a strong recovery.
o   Aircraft investment growth may decelerate.
o   Ships and boats investment growth is expected to strengthen.
o   Railroad equipment investment growth should continue to improve.
o   Trucks investment growth is poised for a resurgence.
o   Computers investment growth is set to improve.
o   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 Q3 report is the second update to the 2017 Annual Outlook, and will be followed by one more quarterly update before the publication of the 2018 Annual Outlook in December.  

Download the full report at www.leasefoundation.org/research/eo/.
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