Equipment and software investment growth is likely to slow in 2019 to 3.9%, according to the 2019 Equipment Leasing & Finance U.S. Economic Outlook released earlier this month from the Equipment Leasing & Finance Foundation. The forecast is down from a 4.5% expansion predicted in the Q2 update.
Business conditions for the equipment finance industry softened the first half of the year as the U.S. manufacturing sector weakened, capital spending slowed, consumer confidence eased, and consumer spending moderated, the report says.
Forecast for equipment verticals
In addition, investment growth in several key verticals is expected to slow or contract in the second half of 2019, according to the Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which includes indices for 12 equipment and software investment verticals.
Over the next three to six months, it says:
- Agricultural machinery investment growth is likely to remain modestly positive;
- Construction machinery investment growth is likely to weaken further and potentially stall;
- Materials handling equipment investment growth is likely to weaken and may turn negative;
- All other industrial equipment investment growth will likely weaken and may stall;
- Medical equipment investment should grow at a moderate pace;
- Mining and oilfield machinery investment growth is likely to remain steady;
- Aircraft investment growth is likely to remain negative;
- Ships and boats investment growth may remain sluggish and may stall;
- Railroad equipment investment growth is unlikely to improve and may worsen;
- Trucks investment is expected to grow moderately;
- Computers investment growth will likely continue to weaken, potentially into negative territory; and,
- Software investment growth should remain solid.
Economic snapshot: expansion despite weakening fundamentals
The Q3 2019 Equipment Leasing & Finance Industry Snapshot, a resource for industry participants to incorporate into executive briefings and presentations, shows economic expansion despite weakening economic fundamentals.The U.S. economy expanded to a 3.1% annualized growth rate in Q1, a notable improvement from Q4 2018’s 2.2% growth and above the 30-year quarterly average of 2.5%. First-quarter growth was driven by net exports, inventories and government spending, but consumer spending and investment disappointed.
Economic indicators mixed
The report, released by the Equipment Leasing & Finance Foundation and prepared by Keybridge Research, goes on to highlight current economic tailwinds and headwinds.
- Thriving oil sector - U.S. crude oil production is at an all-time high, surpassing 12 million barrels per day to make the U.S. the world's leading oil producer. Despite price volatility, the break-even price for U.S. oil production continues to fall for the new and existing pumps, encouraging new investment in the sector.
- Dovish Federal Reserve - Federal officials have laid the groundwork for cutting rates in recent weeks, and the "market-implied" probability of a July rate cut is 100%. A cut would marginally ease financial stress on consumers and businesses but is unlikely to trigger a wholesale improvement in investment or spending.
- Trade tensions - Tensions among top U.S. trade partners remain high, despite recent progress (potentially) in China. These disputes continue to dampen business confidence and are exacerbating an already uncertain economic climate.
- Worsening U.S. manufacturing performance - Waning global demand, a strong dollar, and escalating trade disputes have contributed to a softening manufacturing sector. Several metrics of manufacturing performance suggest industrial output will remain muted or decline further in the second half of the year.
Narrative gives more detail
A slide deck summarizes the snapshot of current conditions and projections for the U.S. economy and equipment finance industry with clear, easy-to-digest charts and short narratives of key trends. See it here: