ELFF’s Q3 Economic Outlook Update Projects 7% Growth in Equipment Investment

According to the Equipment Leasing & Finance Foundation’s Q3 update to the 2018 Equipment Leasing & Finance Economic Outlook, after solid growth in 2017, investment in equipment and software should remain strong in 2018 and is projected to expand 7.0%. While expectations are still positive, this reading is down from the 8.5% projection in the Q2 update.

Meanwhile, business investment continues to expand at a robust pace, contributing to a likely strong year for the U.S. economy. Overall, the economy is expected to grow 2.8% in 2018, up from 2.7% in the previous outlook and significantly better than last year’s 2.3% growth rate.

“Momentum continues to be positive for the equipment finance industry with a forecast including a stable growing capital expenditure environment,” said Jeffry D. Elliott, ELFF chairman and senior managing director of Huntington Equipment Finance.

Capital spending has been solid thus far in 2018, and strengthening economic momentum coupled with elevated business confidence levels should lead to continued investment during the third and fourth quarters. As stated previously, investment in equipment and software is expected to grow by 7.0%, and financial stress remains low. Credit supply conditions are mixed as banks are easing standards for C&I and commercial real estate loans while tightening standards for household lending.

Solid economic fundamentals suggest the economy could reach the 3% annual growth target in 2018, but a stagnant housing market, potential softening in global growth (particularly in emerging markets) and continued upheaval in U.S. trade policy are areas of concern.

Overall, the U.S. economy remains on firm footing in 2018 as most major GDP components are contributing positively to growth, with the notable exception of housing. The labor market should maintain its strength and drive improvements in consumer spending (which fell far short of expectations in Q1/18), while business investment should continue to impress.

Based on the Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, overall, investment in most equipment verticals should remain solid in 2018. Over the next three to six months:

  • Agriculture machinery investment growth will likely soften.
  • Construction machinery investment growth should hold steady, though investment growth may peak later this year.
  • Materials handling equipment investment should continue to grow at a moderate pace.
  • All other industrial equipment investment growth has likely peaked and may decelerate.
  • Medical equipment investment growth may have peaked and is likely to decline.
  • Mining and oilfield machinery investment growth may improve.
  • Aircraft investment growth is unlikely to worsen and may improve.
  • Ship and boat investment growth is expected to increase.
  • Railroad equipment investment growth should remain steady.
  • Truck investment growth may soften.
  • Computer investment growth should remain solid.
  • Software investment growth should remain stable.

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