Driven by strong consumer spending and a resilient labor market, the U.S. economy continues to expand at a healthy clip, according to the Q2/24 update of the 2024 Equipment Leasing & Finance U.S. Economic Outlook from the Equipment Leasing & Finance Foundation. Real equipment and software investment growth is projected to be 2.2% in 2024, with activity expected to pick up in the latter half of the year. The report, which was prepared by Keybridge, also forecasts real GDP growth of 2.3% this year, an improvement over the 1.7% growth forecasted in the foundation’s 2024 Economic Outlook published last December.

The foundation’s report is focused on the $1.16 trillion equipment leasing and finance industry and highlights key trends in equipment investment, placing them in the context of the broader U.S. economic climate.

“The foundation’s Q2 outlook shows that the ‘soft landing’ appears to be on track. Although equipment and software investment has been weak across most verticals over the last year, activity is expected to pick up as the year goes on, consistent with recent releases of the foundation’s Momentum Monitors and Monthly Confidence Index,” Leigh Lytle, president of the foundation and president and CEO of the Equipment Leasing and Finance Association, said. “The Fed is likely to be cautious about rate cuts, particularly given recent backtracking on inflation, but we still expect borrowing costs to fall later this year.”

Highlights from the Q2/24 update to the 2024 outlook include:

• Equipment investment was negative for the second consecutive quarter, but continued strength in software investment led to overall E&S growth of 3.2% (annualized) in Q4/24. Economic conditions are generally positive, however, and a modest improvement in investment activity is expected later this year.
• The U.S. economy continues to hum, driven by solid consumer spending and surprisingly robust job growth. Borrowing costs and year-to-date inflation remain elevated, however, putting pressure on U.S. consumers and raising the potential for a spending slowdown later this year. Meanwhile, a sluggish global economy may reduce business investment and demand for U.S. exports. For now, though, the foundation expects both job growth and consumer spending to slow but remain healthy while inflation continues along its bumpy path toward the Federal Reserve’s 2% target.
• Overall manufacturing activity remains soft in early 2024. Both industry production and capacity utilization have trended downward for most of the last 18 months, and manufacturing hours worked is near its lowest point since 2010 (excluding the COVID-19 pandemic’s peak). One potential bright spot is the ISM Purchasing Managers Index, which moved back into expansion territory in March.
• Despite a general consensus that the U.S. economy remains on track for a soft landing, small business owners have a somewhat pessimistic outlook. Concerns regarding inflation are heightened, and both hiring and investment plans have slowed.
• The Federal Reserve remains cautious, further delaying its long-awaited rate cut cycle in March, as progress toward its 2% target stalled in Q1/24. With job growth still robust, Fed officials are unlikely to begin cutting rates until this summer or fall. Two rate cuts in 2024 are the most likely outcome.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the economic outlook, tracks 12 equipment and software investment verticals. This month, five verticals are expanding, two are recovering, three are weakening and two are “on the line” between expanding and recovering. Over the next three to six months, the foundation expects the following trends to materialize on a year-over-year basis:

• Agriculture machinery investment growth is expected to improve.
• Construction machinery investment growth may improve.
• Materials handling equipment investment growth should remain relatively flat.
• All other industrial equipment investment growth is unlikely to improve and may worsen.
• Medical equipment investment should strengthen.
• Mining and oilfield machinery investment growth is likely to weaken.
• Aircraft investment growth is unlikely to change significantly.
• Ships and boats investment growth may improve modestly.
• Railroad equipment investment growth is unlikely to change significantly.
• Trucks investment growth has the potential to improve but is likely to remain relatively flat.
• Computers investment growth should strengthen.
• Software investment growth should remain steady.

The foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides a U.S. macroeconomic outlook, credit market conditions and key economic indicators. The Q2/24 report is the first update to the 2024 outlook and will be followed by two more quarterly updates before the publication of the 2025 outlook in December.