Equipment finance trends to watch: Consumer confidence, government and construction spending

Business and consumer confidence surged after the election and remain at record highs, a recent optimism that coud translate into higher consumption and investment increases, notes the Equipment Leasing & Finance Foundation in a new quarterly Industry Snapshot.

"So far, this optimism has not been reflected in 'hard' data on consumer spending and investment, but improvements may emerge later this year," says the April 2017 report.

Equipment financing companies also should keep their eyes on government gridlock and whether Congress will accomplish major tax reform as expected, and continue efforts to repeal and replace the Affordable Care Act.

The equipment leasing and finance industry also should monitor construction spending, which has disappointed in recent months. 

"Demand for housing and commercial real estate are expected to remain strong, but there are some questions regarding whether supply will keep pace with demand throughout the year," the report says.

Business investment

Business investment has now increased modestly for three consecutive quarters after two quarters of contraction, but growth remains weak.

On a seasonally adjusted annualized basis, business investment expanded modestly by 0.9% — the third consecutive increase.

Screen Shot 2017-04-21 at 4.05.19 PM.pngMomentum monitor

Although 2016 was a subpar year for equipment investment, most equipment verticals are exhibiting positive short-term momentum.

For example, these equipment verticals are showing particular promise in months ahead:

  • railroad equipment
  • trucks
  • ships and boats
  • mining and oilfield machinery
  • construction machinery
  • computers

Propensity to finance

Despite recent increases, interest rates remain historically low, which encourages businesses to finance their equipment acquisitions.

In an environment of steady growth and low-but-rising interest rates, the propensity to finance could increase as businesses try to lock in lower rates. In addition, customers' growing preference for flexibility and convenience, rather than ownership, could also drive consistent increases in coming years.

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