The ELFF projects that the U.S. economy will grow by 1.6% in 2023 given stronger-than-expected growth in the first quarter.
Growth in the first quarter was broad-based, fueled by consumer and government spending, net exports and business investment.
While the economy is still above water, the ELFF continues to expect a recession to begin before the end of the year.
Economic tailwinds for growth in 2023 include:
A strong labor market, which added more than 1.7 million jobs in the first half of 2023 and continues to exceed expectations and fuel consumer spending.
A manufacturing construction spending boom, which indicators suggest is likely to continue, boosted by new federal policy.
A credit crunch resulting from the high-profile bank failures in the spring that led many small and mid-sized banks to tighten lending standards. Tightening lending standards are likely to have broad-based effects on the U.S. economy.
A global economic slowdown due to many of the same factors that have plagued the U.S. economy in recent months.
Factors to Watch
Headline inflation softened significantly in the first half of 2023, easing to 3% year over year in June. However, core inflation is still well above the Fed Reserve’s target, and the ELFF expects headline inflation to rise to around 4% later this year, triggering more tightening from the Fed.
The housing market has dragged on U.S. economic growth since the Fed began raising rates. However, over the last three to six months, there have been some positive signs. Time will tell if the housing market recovery will sustain itself, particularly if inflation proves stickier than hoped and the Fed raises rates again later this year.
Equipment and software investment is expected to grow at a 0.9% pace in 2023.
While equipment and software investment appears to have improved in the second quarter after weaker-than-expected performance in the first quarter, it is expected to ease in the second half of 2023 as businesses pull back on investment due to higher interest rates and a slowing economy.
Most equipment verticals are below their historical average, suggesting that the climate for investment growth is likely to remain weak in the near term.
New business volumegrowth reported in Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25) was up 1.1% year over year and 0.9% year to date in May, well below the pace needed to keep up with inflation. High interest rates and tightening lending standards are likely contributing to the sluggishness, and growth remains negative in real terms. However, according ELFA’s latest Monthly Leasing and Finance Index (MLFI-25), overall new business volume for June was $10.9 billion, up 6% year over year from new business volume in June 2022 and up 15% from $9.5 billion in May.
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