According to the Alta Group’s new report, 2020 Predictions for Equipment Finance, this year will prove pivotal in the next chapter of the U.S. economy. Financial pressures are increasing. Europe, Latin America and other regions are experiencing their own headwinds and tailwinds. Meanwhile, consumer regulations are creeping into commercial finance. These developments and continued disruption will affect the equipment finance industry’s performance in the coming months, creating new product opportunities as well as challenges.
The economy will glide along at about a 2% growth rate through the presidential election in November reflecting low interest rates, stable consumer spending buoyed by full employment and rising wages, and favorable regulatory and tax environments. Markets remain somewhat positive overall and that optimism should propel the Dow past 30,000 which some say reflects overall corporate optimism and forward earnings potential. So, expect continued interest in US-based companies from foreign investors – especially Japanese – while expansion lasts. Yet the longest U.S. expansion in history just might be standing on its last legs as the economy still faces some headwinds, albeit not as intense as in 2019, including slowing global growth, increased tariffs and the resultant continued contraction in business investment.
The direction of the economy beyond November is dependent on the outcome of the 2020 election. If the current administration prevails for a second term, expect to see more of the same – moderate growth and a positive labor market in the near-term. If a single party sweeps the Executive and Legislative branches, then the economic impact could be far greater – from either a significant cooling of the economy to one that includes another round of tax cuts and trade deals.
After 10 years of economic expansion, a recession is certainly around the corner. While there is no threat of a recession for 2020, the outcome of the November election will determine its timing – will it be pushed off for a couple more years? The real question to ask is how deep will the recession be? Will its intensity be greater than normal thus matching the expansionary phase which lasted twice the typical cycle?
Demand for new equipment will be soft in 2020 particularly as tariffs have increased the cost of goods sold. What’s more, the propensity to lease may further decline in 2020 not only due to weaker equipment demand but also due to the availability of more cash for purchases due to tax cuts, tighter credit and other factors. However, interest limits on loans may give leases an edge this year.
Expect investment in equipment to be around 1% to 2%. Across equipment types, we believe that sales volumes will increase, although muted compared to 2019. One area where we see prices and volumes falling fast is the truck and trailer category.
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