Depending on the outcome of Washington’s fiscal policy debates, investment in equipment and software is expected to grow 3.3% in 2013, according to the Q4 update to the 2013 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. While equipment and software investment slowed in the second quarter, growth for the rest of the year will be mixed, with some sectors outperforming others, states the report, which is focused on the $725 billion equipment leasing and finance industry.
The report states 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 a number of growth challenges, including fiscal consolidation, rising oil prices and renewed fiscal policy tensions.
William G. Sutton, CAE, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association, said, “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. 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.”
Highlights from the study
The U.S. economy is expected to generate positive but modest growth of 1.7% in 2013.
Equipment and software investment slowed from 3.1% annualized growth in Q1 2013 to just 1.0% (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% growth in equipment and software investment for 2013.
Overall, the 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. Trends include:
- Industrial equipment investment grew 1.4% year-over-year in Q2 and is expected to grow at a slightly faster rate in the second half of 2013.
- Transportation equipment investment is expected to improve some and grow between 2% and 5% year-over-year moving forward.
- Computers & software investment is expected to grow at a slower pace than has been observed over the past several years. Annual growth should be in the 0% to 3% range during Q3 and Q4 of 2013.
- Agriculture equipment investment is expected to remain weak 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% year-over-year in the second quarter, as investment has continued to grow at what is likely an unsustainable rate.
- Medical equipment investment indicators look bleak, suggesting little to no growth going forward.
Leading indicators all decelerated recently, suggesting that a negative correction could occur within the next three to six months.