According to the Equipment Leasing & Finance Foundation’s recently released Q1/23 Equipment Leasing & Finance Industry Snapshot, which summarizes the current conditions and projections for the U.S. economy and equipment finance industry, the U.S. economy will grow by 0.9% in 2023 due to a possible recession that could start in Q2/23. The report also noted that the economy expanded in Q3/22, mainly due to robust net export growth, healthy consumer spending and robust equipment and software investment.

Economic Tailwinds for 2023

• A strong labor market,which added 261,000 jobs in November and still has job openings well above pre-pandemic levels.
• Post-COVID supply chain shifts prompted by manufacturers rethinking globally distributed supply chain models.
• A pro-industrial legislative boost from Congress passing three major bills over the last 18 months which collectively authorize atleast $600 billion in new spending for a variety of industrial and infrastructure projects.

Economic Headwinds for 2023

• The global economy slowing sharply as rising interest rates and geopolitical turmoil take their toll. Other risk factors, such as a slowdown in China, threaten to worsen the decline in growth. Fortunately, the United States remains relatively insulated from the slowing global economy for now.
• A sharply slowing housing sector in which quickly rising interest rates have dampened demand for housing and led to price drops, plummeting homebuilder sentiment and leading to record declines in mortgage applications.
• Financial market turmoil with the market for U.S. Treasury bonds and a collapse in liquidity and the potential for a divided Congress facing another debt ceiling showdown.

Recession Risk

• Currently, six of 10 indicatorstracked in the Foundation-Keybridge Recession Monitor have exceeded the threshold Keybridge considers “recessionary.”
• High inflation pushing the Fed to raise interest rates is negatively affecting the housing market as well as businesses’ plans to invest.
• Wage growth has lagged inflation for20 consecutive months, and real hourly earnings for private sector employees are at levels last seen in January 2020.

Other Highlights

• Equipment and software investment is expected to grow at a 4.2% pace in 2023. Equipment and software investment growth is forecasted to slow as the Fed’s rate hikesweigh on economic growth and cool business investment.
• New business volume growth reported in the Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25) was up 6% year over year in October. Healthy new business volume growth throughout 2022 has been supported by the unwinding of supply chains, which has allowed many firms to acquire the equipment they need, according to the ELFF.