Investments in equipment on the rise

Jason Cannon

October 8, 2013

Equipment Leasing & Finance Foundation expects investments in equipment and software is expected to grow 3.3 percent in 2013, according to the Q4 update to the 2013 Equipment Leasing & Finance U.S. Economic Outlook released Tuesday.

Equipment and software investment slowed in the second quarter, but the report predicts modest improvement in the second half of the year, depending on the outcome of the current fiscal policy debates. Growth is expected to be mixed, with some sectors outperforming others. The report, which is focused on the $725 billion equipment leasing and finance industry, forecasts equipment investment and capital spending in the U.S. and evaluates the effects of various related and external factors in play currently and into the foreseeable future.

“Equipment and software investment in 2013 continues to look like a tale of two halves, with slower growth in the first half of the year and modest improvement forecast for the second half,” says William G. Sutton, CAE, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association. “However, an atmosphere of uncertainty prevails, spurred by current fiscal policy debates, including the looming debt-ceiling fight, and a stubbornly tepid U.S. and global economy.”

According to the Foundation report, the U.S. economy is largely in the same position it has been in for the past six months, with improving fundamentals weighed down by a number of headwinds resulting in subpar growth. Positive economic drivers noted in the report include a recovering housing market, inexpensive natural gas benefitting households and the industrial sector, solid auto sales, rising consumer confidence, improving credit availability for households and businesses and steady job gains. However, the report notes that a number of nagging headwinds, including fiscal consolidation, rising oil prices, and renewed fiscal policy tensions, continue to constrain growth.

The study suggests the U.S. economy is expected to generate positive but modest growth of 1.7 percent in 2013, while equipment and software investment slowed from 3.1 percent annualized growth in Q1 2013 to just 1.0 percent (quarter-to-quarter annualized) in Q2.

The slower growth is a reflection of broader macroeconomic headwinds and uncertainty, but also categorical revisions to the Bureau of Economic Analysis’s equipment investment accounts. Looking ahead, a modest uptick in investment is expected through the end of the year, with an overall forecast of 3.3 percent growth in equipment and software investment for 2013.

According to the report, the overall outlook for credit markets remains optimistic as investors continue to be risk-on, credit availability is steadily increasing, and the Federal Reserve is expected to maintain a near-zero short-term interest policy until economic conditions suggest otherwise.

Growth in equipment and software investment is expected to be mixed. Leading indicators point towards a possible stabilization in investment in agriculture equipment. Fairly average growth is expected for investment in computers & software, construction, industrial, medical, and transportation equipment.

The trends point toward weak investment in agriculture equipment on a quarter-to-quarter basis, but unusually poor performance in Q3 2012 could translate into positive annual growth in the second half of 2013. Construction equipment investment continued its rapid growth, up 38 percent year-over-year in the second quarter, as investment has continued to grow at what the report says “is likely an unsustainable rate.”

Leading indicators all decelerated recently, suggesting that a negative correction could occur within the next three to six months.

Transportation equipment investment is expected to improve some and grow between 2 percent and 5 percent year-over-year moving forward.

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