2018 Economic Outlook Forecasts 7.0% Expansion In Equipment and Software Investment and 2.8% GDP Growth

While construction machinery investment growth should hold steady, investment growth may peak later this year

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After solid growth in 2017, investment in equipment and software should remain strong in 2018 and is projected to expand 7.0% (down from 8.5% in the Q2 Economic Outlook published in April) according to the Q3 update to the 2018 Equipment Leasing & Finance U.S. Economic Outlook released today by the Equipment Leasing & Finance Foundation. Business investment continues to expand at a robust pace, contributing to a likely strong year for the U.S. economy. Overall, the economy is expected to grow 2.8% in 2018 (up from 2.7% in our previous outlook, and significantly better than last year’s 2.3% growth rate. The quarterly report by the Foundation, which is focused on the $1 trillion equipment leasing and finance sector, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate.

Jeffry D. Elliott, Foundation Chairman and Senior Managing Director of Huntington Equipment Finance, said, “Momentum continues to be positive for the equipment finance industry with a forecast including a stable growing capital expenditure environment.”

Highlights from the study include:

  • Capital spending has been solid thus far in 2018, and strengthening economic momentum coupled with elevated business confidence levels should lead to continued investment during the third and fourth quarters. Investment in equipment and software is expected to grow by 7.0%, and financial stress remains low. Credit supply conditions are mixed as banks are easing standards for C&I and commercial real estate loans while tightening standards for household lending.
  • Solid economic fundamentals suggest the economy could reach the 3% annual growth target in 2018, but a stagnant housing market, potential softening in global growth (particularly in emerging markets), and continued upheaval in U.S. trade policy are areas of concern.
  • Overall, the U.S. economy remains on firm footing in 2018 as most major GDP components are contributing positively to growth, with the notable exception of housing. The labor market should maintain its strength and drive improvements in consumer spending (which fell far short of expectations in Q1), while business investment should continue to impress.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals. In addition, the “Momentum Monitor Sector Matrix” provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Overall, investment in most equipment verticals should remain solid in 2018. Over the next three to six months:

Agriculture machinery investment growth will likely soften. Construction machinery investment growth should hold steady, though investment growth may peak later this year. Materials handling equipment investment should continue to grow at a moderate pace. All other industrial equipment investment growth has likely peaked and may decelerate. Medical equipment investment growth may have peaked and is likely to decline. Mining and oilfield machinery investment growth may improve. Aircraft investment growth is unlikely to worsen and may improve. Ships and boats investment growth is expected to increase. Railroad equipment investment growth should remain steady. Trucks investment growth may soften. Computers investment growth should remain solid. Software investment growth should remain stable.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research LLC. 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 2018 Annual Outlook and will be followed by one final quarterly update prior to the publication of the 2019 Annual Outlook in December.

Download the full report at https://www.leasefoundation.org/industry-resources/u-s-economic-outlook/. All Foundation studies are available for free download from the Foundation’s online library at http://store.leasefoundation.org/.