Equipment investment and capital spending in the $725 billion equipment leasing and finance industry will grow, although at a below-average rate of 2.9%, hampered by weak demand and fiscal uncertainty, according to the 2013 Equipment Leasing & Finance U.S. Economic Outlook of the Equipment Leasing & Finance Foundation. The report notes that the outlook for investment in 2013 is largely contingent on the resolution of the “fiscal cliff,” which could either continue to send negative shock waves through the economy or offer businesses encouragement.
Even once the fiscal challenges are resolved, it will take time to work out the details and for businesses to regain confidence. Looking forward into the third and fourth quarters of 2013, growth in equipment and software investment is expected to begin to regain momentum.
“The 2013 Equipment Leasing & Finance U.S. Economic Outlook projects positive but muted growth in equipment investment through the beginning of 2013, as policy uncertainty continues to weigh on business confidence,” said William G. Sutton, CAE, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association. “However, if policymakers find a solution to key fiscal issues, we expect businesses will feel more confident in the second half of the year, leading to increased equipment investment.”
Highlights from the study include:
∙ Domestic political risk is the major concern on the radar for 2013. Without a smooth solution to current fiscal challenges, growth is forecast to fall significantly below 2%.
∙ Equipment and software investment took a significant hit in the third quarter of 2012, declining 2.7% (annualized rate) after a 4.8% increase in the second quarter. The data suggest that businesses have essentially “hit the pause button” on investment until there is a resolution to the “fiscal cliff.” Looking ahead to the second half of 2013, a strengthening housing sector and a reduction in political uncertainty could have an unlocking effect on business investment.
Trends in equipment investment include:
∙ Industrial equipment investment will grow but at a slower rate than recent quarters. Depending on the outcome of the fiscal cliff debate, manufacturing could drive stronger growth in the second half of 2013.
∙ Growth in transportation equipment investment is likely to moderate, averaging about 10% over the next 3 to 6 months.
∙ Computers and software equipment investment is projected to stagnate for the next 3 to 6 months.
∙ Construction equipment investment is projected to average strong growth (about 15%) as the housing market maintains its forward momentum.
∙ Agriculture equipment investment is likely to contract in Q4 2012 and Q1 2013.
∙ Medical equipment investment growth is likely to range between -2% and 2% in the next 3 to 6 months.