Investment in equipment and software is expected to contract 0.5% in 2016, according to the Q4/16 update to the 2016 Equipment Leasing & Finance U.S. Economic Outlook.

The update was released by the Equipment Leasing & Finance Foundation, which lowered its forecast from the 0.9% growth projection in its Q3/16 update in July.

After contracting during the first two quarters, the new report forecasts modest equipment and software investment growth for the rest of 2016, as economic headwinds continue to weigh on investment spending and confidence.

“The softer growth numbers projected for 2016 reflect overall hesitancy on the part of business decision-makers to invest in equipment and software until the cloud that is the U.S. election cycle clears in November,” said Ralph Petta, president of the ELFF and president and CEO of the Equipment Leasing and Finance Association. “A potential wild card impacting 2017 investment growth is the Federal Reserve’s decision whether to increase short-term interest rates prior to year-end.”

Highlights from the study include:

• Overall equipment and software investment is expected to contract 0.5% in 2016 after expanding by 3.8% in 2015. The report predicts that after a slow start to the year, there is potential for a modest rebound in the second half of the year. However, poor performance in Q1/16 and Q2/16 virtually guarantee that 2016 will be a disappointing year for growth in both the overall economy and business investment.
• In 2016, the U.S. economy is likely to experience modest growth of 1.6% overall, as strong labor markets, consumer spending, housing growth and a somewhat weaker dollar collectively drive growth, but are largely offset by weak business investment and government spending.
• Business demand for credit remains generally weak but has not deteriorated significantly from last quarter. The Federal Reserve Board opted to delay an interest rate hike in September, but a rate increase is expected in late 2016.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report and tracks 12 equipment and software investment verticals, forecasts that several equipment verticals should see an improvement in the investment climate through the end of the year and into next year. Over the next three to six months:

• Agriculture machinery investment growth will likely remain subdued.
• Construction machinery investment growth may rebound modestly.
• Materials handling equipment investment is likely to strengthen.
• All other industrial equipment investment growth is expected to rebound.
• Medical equipment investment should remain solid.
• Mining and oilfield machinery investment growth will likely remain sluggish.
• Aircraft investment growth is likely to strengthen.
• Ships and boats investment growth should remain muted.
• Railroad equipment investment growth is poised to rebound.
• Trucks investment growth should improve.
• Computers investment growth should remain modest.
• Software investment growth should remain solid.