Equipment Financing Slow but Pickup Ahead

The projected growth in equipment and software investment for 2012 has slowed to 6.4 percent, down from the previous projection of 6.9 percent, according to the Equipment Leasing & Finance Foundation’s quarterly update to its 2012 Equipment Leasing & Finance U.S. Economic Outlook. The recent slowdown in economic activity indicates that equipment investment continued to lose momentum in Q2, but forward-looking indicators suggest growth will stabilize and potentially improve in the second half of the year, the report.

“The steady overall growth projected for 2012 aligns with the steady year-over-year growth in new business volume seen in the Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index,” said William G. Sutton, CAE, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association. “The Outlook report and the Foundation’s Monthly Confidence Index both indicate that concerns over the European debt crisis, U.S. unemployment and regulatory and political uncertainty continue to hamper growth. However, we are cautiously optimistic that growth will pick up in the second half of 2012 and into 2013 due to improvements in the manufacturing and housing sectors and lower oil prices.”

Key findings of the report include:

• Expectations for 2012 are that investment will grow, but at a slower rate than previous quarters. The European crisis, the slowdown in emerging markets and regulatory and political uncertainty remain significant headwinds for 2012.

• Looking to the second half of 2012, notwithstanding an external shock, the U.S. is poised for growth driven by an improving housing market, a growing manufacturing sector and pent-up demand in the consumer and business sectors. Lower oil prices should also help support growth during the second half of the year. The initial projection for 2013 growth in equipment and software investment is 8 percent.

Trends in equipment investment include:

Industrial equipment investment likely grew at a below-average pace in Q2 2012, but could pick up by late 2012 or early 2013;

Transportation equipment investment should remain solidly positive, but is unlikely to maintain the rapid growth rates of 2011;

Computers and Softwareequipment investmentshould remain healthy, but is likely to slow down somewhat;

Construction equipment investment is projected to continue to grow at a strong pace as the housing market rebounds;

Medical equipment is likely to be relatively flat on a year-year basis;

Agriculture equipment investment is likely to decelerate in the next three to six months.

Credit market conditions have stabilized in the past several weeks after fears of Greece exiting the EU caused tensions to spike. The subsequent flight to safety by investors pushed long-term U.S. Treasury rates to all-time lows. As economic conditions slowly improve, demand for business loans will continue to grow, and supply constraints for large businesses should ease further. However, small businesses are reportedly having some difficulties in accessing capital. Conditions remain favorable for purchasing versus leasing, as the cost of borrowing is near record lows.

The U.S. economy slowed in the first quarter of 2012 to an annualized growth rate of 1.9 percent, down from 3 percent in the fourth quarter of 2011. Overall, the macro outlook for 2012 has not changed materially. Real GDP growth is forecast at 2.2 percent, down from the previous forecast of 2.3 percent, and inflation expectations dropped from 2.4 percent to 2.3 percent.

Related Editorial:

New Equipment Finance Activity Trends Positively

Lease Finance Industry Confidence Dips in May

Some Manufacturing Leaving China for U.S.

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