Low financial stress, an expanding housing sector and increased federal spending on infrastructure are expected to propel equipment and software investment growth by 4.6% in 2022, according to the 2022 Equipment Leasing & Finance U.S. Economic Outlook from the Equipment Leasing & Finance Foundation. The outlook also projects that annual U.S. GDP growth for 2022 will reach 3.5%.

The ELFF’s report, which is focused on the nearly $1 trillion equipment leasing and finance industry, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate.

“This report provides a thorough examination of the wide range of conditions that will impact the U.S. economy and business investment next year,” Nancy Pistorio, chair of the ELFF and president of Madison Capital, said. “Despite uncertainty around new COVID variants, ongoing supply chain issues and inflation, positive factors should outweigh the headwinds. Robust consumer demand, a strong labor market and increased equipment and software investment —the lifeblood of the equipment finance industry — look promising. We can look forward to ‘getting back to business’ in 2022, provided supply chain issues ease significantly and the pandemic is effectively curbed.”

2022 Outlook Highlights

• While equipment and software investment is forecast to grow 4.6% (annualized) in 2022, supply chain constraints, high inflation and tighter monetary policy are key headwinds to growth.
• The U.S. economy slowed in fall 2021 as the pandemic worsened and supply chain constraints snarled global trade and drove inflation to multi-decade highs. However, growth in Q4/21 has likely rebounded, and the economy appears poised for an above-average year in 2022.
• The U.S. manufacturing sector should continue to expand at a healthy rate in 2022, although supply chain issues, hiring difficulties and high inflation could dampen industrial sector output, particularly during the first half of the year.
• On Main Street, the outlook has grown increasingly cloudy. Small firms are more susceptible to surging input costs and labor scarcity than large firms, which may weigh on small businesses as the new year gets underway. On the positive side, consumer demand remains robust, and the winter months should be smoother this year than last.
• The Federal Reserve recently shifted its position in response to new data and now acknowledge that inflationary pressures are likely here to stay. The Fed is now expected to end quantitative easing earlier than planned and raise interest rates at least once by mid-2022. Multiple rate hikes are possible in 2022, particularly if job growth stays on track.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which was released in conjunction with the outlook, 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 monitor’s 12 verticals based on recent momentum and historical strength. Eleven verticals are peaking/slowing, and one is accelerating. Over the next three to six months, year over year:

• Agriculture machinery investment growth will continue to decelerate.
• Construction machinery investment growth will decelerate but likely remain in positive territory.
• Materials handling equipment investment growth should remain positive.
• All other industrial equipment investment growth should slow.
• Medical equipment investment growth should remain in positive territory but will likely decelerate.
• Mining and oilfield machinery investment growth should stay strong.
• Aircraft investment growth will continue to decelerate but remain positive.
• Ships and boats investment growth is expected to remain in healthy territory.
• Railroad equipment investment growth is expected to remain strong.
• Trucks investment growth should remain healthy.
• Computers investment growth should remain positive but is unlikely to accelerate.
• Software investment growth may have peaked but should remain robust.