“The Q3 update indicates that America is now opening for business quickly,” Scott Thacker, chair of the ELFF and CEO of Ivory Consulting, said. “The evidence illustrated in the outlook points to a booming economy for the second half of the year as long as the pandemic remains in check and despite several potential headwinds which must be monitored carefully. In the shorter term, strong growth for both the economy and the equipment finance industry are expected to be realized this summer.”
Q3 Outlook Update Highlights
Equipment and software investment benefited from an 18% surge in Q1/21 and is well above its pre-COVID-19-pandemic level.
The U.S. economy expanded at a robust 6.4% (revised) annualized rate in Q1/21, an acceleration from Q4/20. Q1/21 GDP was just 0.9% below its level at the end of 2019, indicating that the economy exceeded its pre-pandemic level in Q2/21.
The U.S. manufacturing sector is still facing record levels of demand, even as the pandemic hamstrings key manufacturing centers around the world. However, industrial output in the U.S. has been constrained by acute shortages of key inputs and elevated prices.
Main Street has suffered less damage from the pandemic than many expected, in part due to historic federal relief efforts. Consumers are spending again, capacity limits and distancing requirements have largely been lifted and the outlook is as bright as it has been since the pandemic began.
Federal Reserve officials have, for the most part, reached a consensus agreement that inflation pressures will prove to be transitory. However, given the speed and magnitude of the economic rebound, the Fed has hedged a bit and signaled that rate hikes could begin in 2023.
While the outlook is mostly positive, notable headwinds remain, including two — supply chain issues and services exports — that stem from the rest of the world’s continued struggles with the COVID-19 pandemic and comparatively slower vaccination pushes. Additionally, the risk of sustained high inflation and the expiration of federal support measures are key factors to watch this summer and fall.
According to the Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the outlook, nine verticals are showing signs of accelerating investment after the pandemic-fueled collapse and three other verticals are showing signs of peaking, although investment growth should remain healthy in the near term. Over the next three to six months, year over year:
Agriculture machinery investment growth is likely to decelerate.
Construction machinery investment growth should continue to strengthen.
Material handling equipment investment growth will remain robust.
All other industrial equipment investment growth should continue to improve.
Medical equipment investment growth may have peaked but should remain strong.
Mining and oilfield machinery investment growth should accelerate, though year-over-year growth rates may stay in negative territory.
Aircraft investment growth will continue to improve but may also remain in negative territory.
Ship and boat investment growth should improve.
Railroad equipment investment growth may rebound.
Truck investment growth could strengthen.
Computer investment growth should remain strong.
Software investment growth should remain robust and may even accelerate.
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