Equipment investment to grow 3%

The Equipment Leasing and Finance Foundation is predicting that investment in equipment and software is expected to grow 3% in 2017, suggesting next year will show an improvement following a likely contraction in 2016.

According to Foundation’s 2017 economic outlook survey, while persistent global headwinds and policy uncertainty are ongoing concerns, the US economy’s fundamentals are generally solid, and rising business confidence should lead to increased investment. The Foundation’s report highlights key trends in equipment investment and places them in the context of the broader US economic climate. The report will be updated quarterly throughout 2017.

Ralph Petta, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association (ELFA), said: “With the elections over and key policy decisions beginning to take shape, the cloud of uncertainty hanging over businesses’ decisions to invest appears to be lifting. Business confidence in the future of the US economy is on the rise.”

“Unemployment is slowly decreasing, housing prices are improving, and the securities markets are in all-time record territory. This more positive economic news during the second half of 2016 seems to indicate that GDP is poised for solid, if unspectacular, growth. We are hoping that the spillover effect is a strong equipment finance industry in 2017,” he added.

The study suggests that in 2017, the US economy is poised to experience moderately strong growth of 2.7%. After a growth pause during the first half of 2016 in which low energy and commodity prices contributed to weak business confidence and investment, the US economy appears to be back on solid footing. Credit market conditions are healthy and are not expected to inhibit business investment or the equipment finance industry.

Sector variations

The report includes the Foundation-Keybridge US equipment and software investment momentum monitor, which tracks 12 equipment and software investment verticals.
A number of verticals are primed to improve in the first half of 2017. Over the next three to six months investment growth is expected in construction machinery; mining and oilfield machinery; ships and boats; and computers.

Agriculture machinery investment growth will likely remain negative, while investment growth in material handling and medical equipment is likely to remain stable. Aircraft investment growth will likely strengthen, as will software and railroad equipment investment growth, while trucks investment growth is poised to accelerate.

Market size

The Equipment Leasing and Finance Foundation has released a new infographic, How Big is the US Equipment Finance Market?, based on its recently released US Equipment Finance Market Study: 2016-2017, which provides a comprehensive view on the current size and anticipated growth of the US equipment finance market.

The infographic provides a snapshot of some key findings in the report, which suggests 68%, or $1.02 trillion, was financed of the total public and private investment in equipment and software in 2015. Nearly eight out of 10 of businesses use at least one form of financing when acquiring equipment.

The share of cash acquisitions of equipment declined for companies of all sizes from 2011 to 2015. The three biggest equipment types companies acquired in 2015 were communication equipment, computer equipment, and software.

The top three reasons companies gave for financing equipment are optimization of cash flow, protection from equipment obsolescence and tax advantages. Banks accounted for 47% of financed acquisitions, manufacturer or vendor financing accounted for 30% and independents accounted for 16%, while 7% were financed by other sources.