Q3 Economic Outlook: Equipment Investment to Stabilize or Improve in Second Half of 2012

The Equipment Leasing & Finance Foundation (the Foundation) releases a new quarterly update to its 2012 Equipment Leasing & Finance U.S. Economic Outlook today.  The report, which is focused on the $628 billion equipment leasing and finance industry, forecasts equipment investment and capital spending in the United States and evaluates the effects of various related and exogenous factors in play currently and into the foreseeable future.  According to the Q3 Outlook, the projected growth in equipment and software investment for 2012 has slowed to 6.4 percent, down from the previous projection of 6.9 percent. The recent slowdown in economic activity indicates that equipment investment continued to lose momentum in Q2, but forward-looking indicators suggest growth will stabilize and potentially improve in the second half of the year.    

“The steady overall growth projected for 2012 in the Q3 Outlook aligns with the steady year-over-year growth in new business volume seen in the Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index. The Outlook report and the Foundation’s Monthly Confidence Index both indicate that concerns over the European debt crisis, U.S. unemployment and regulatory and political uncertainty continue to hamper growth. However, we are cautiously optimistic that growth will pick up in the second half of 2012 and into 2013 due to improvements in the manufacturing and housing sectors and lower oil prices,” said William G. Sutton, CAE, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association.

Key findings include:

  • Expectations for 2012 are that investment will grow, but at a slower rate than previous quarters. The European crisis, the slowdown in emerging markets and regulatory and political uncertainty remain significant headwinds for 2012.
  • Looking to the second half of 2012, notwithstanding an external shock, the U.S. is poised for growth driven by an improving housing market, a growing manufacturing sector and pent-up demand in the consumer and business sectors. Lower oil prices should also help support growth during the second half of the year. The initial projection for 2013 growth in equipment and software investment is 8 percent.
  • Trends in equipment investment include:
    • Agriculture equipment investment is likely to decelerate in the next three to six months.
    • Computers and Software equipment investment should remain healthy, but is likely to slow down somewhat.
    • Construction equipment investment is projected to continue to grow at a strong pace as the housing market rebounds.
    • Industrial equipment investment likely grew at a below-average pace in Q2 2012, but could pick up by late 2012 or early 2013.
    • Medical equipment is likely to be relatively flat on a year-year basis.
    • Transportation equipment investment should remain solidly positive, but is unlikely to maintain the rapid growth rates of 2011
    • Credit market conditions have stabilized in the past several weeks after fears of Greece exiting the EU caused tensions to spike. The subsequent flight to safety by investors pushed long-term U.S. Treasury rates to all-time lows. As economic conditions slowly improve, demand for business loans will continue to grow, and supply constraints for large businesses should ease further.  However, small businesses are reportedly having some difficulties in accessing capital. Conditions remain favorable for purchasing versus leasing, as the cost of borrowing is near record lows. 
    • The U.S. economy slowed in the first quarter of 2012 to an annualized growth rate of 1.9 percent, down from 3 percent in the fourth quarter of 2011. Overall, the macro outlook for 2012 has not changed materially. Real GDP growth is forecast at 2.2 percent, down from the previous forecast of 2.3 percent, and inflation expectations dropped from 2.4 percent to 2.3 percent.

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 report will continue to be updated quarterly throughout 2012.

Download the full report at www.leasefoundation.org/IndRsrcs/EO/.

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