Economic and rental forecasts positive

Three recent surveys suggest that prospects for equipment leasing look good throughout 2016 and beyond, with signs that finance chiefs are positive about the direction the economy is heading in and are ready to start spending.

According to Bank of America Merrill Lynch’s 2016 CFO Outlook, CFOs reckon the US economy is at its highest level since the 2008 recession and predict continued growth for their companies in 2016.

The poll of 500 financial executives from companies with annual revenues ranging from $25 million to $2 billion found almost all (90%) believe that the US economy will expand or remain the same, and view the outlook for the economy and their companies as increasingly positive.

If interest rates do rise, as is widely predicted, 70% of CFOs surveyed say it would have no impact on how they would invest their working capital, maintaining their current allocation of instruments and deposits. This is a significant increase from 51% in 2015, suggesting that CFOs have been making adjustments ahead of time.

“CFOs continue to be optimistic about the US economy and their own companies,” said Alastair Borthwick, head of global commercial banking at Bank of America Merrill Lynch. “This is consistent with what we’re hearing from our middle-market clients. It‘s significant that more than half the companies surveyed are investing their resources to hire new full-time employees, for the first time since the recession, as a means to support their anticipated growth.”

Tech investment growth

One likely area of equipment investment is the IT sector Nearly all CFOs surveyed (96%) say they allocated budget dollars in 2015 to introduce new technology or upgrade existing systems. On average, companies devote 6% of their total budget to upgrading or replacing technology.

Bank of America Merrill Lynch’s analysis is backed up by separate research from TD Bank which also shows that CFOs plan to significantly increase their company’s capital spending in 2016, as the economic outlook remains positive, with technology topping the list.

According to TD Bank’s fifth annual CFO Survey, based on a poll of CFOs and other corporate financial decision makers at middle market and large corporations, a majority (61%) expect to increase capital expenditures next year, a marked increase on the 39% recorded in the inaugural 2010 survey. Participants cited three keys areas of capital spending for 2016: technology (58%), existing facilities (44%) and data security (41%).

Despite speculation that the Federal Reserve may soon raise interest rates for the first time in over a decade, the majority of executives reported this would not alter their plans to make business investments in the year ahead. Three-quarters (74%) said the rate increase would have no impact on their borrowing, and 6% said a rate hike would make them more likely to borrow.

“We’ve seen a significant shift in sentiment over the five years we’ve been surveying the market as a number of looming economic headaches have largely subsided,” said Greg Braca, executive vice president and head of corporate and specialty banking at TD Bank. “Rising interest rates may create headline noise which impacts the stock market, but executives are prepared for an eventual rate increase and are moving forward with investments in their infrastructure, facilities and people. It’s clear that businesses have adjusted to the ‘new normal’ and are focused on growing within that environment.”

Rental revenue uplift

To add to the good news, the American Rental Association (ARA) is forecasting equipment rental industry revenue growth in the US of 6.7% in 2016 and 2017, 6.2% in 2018 and 5.8% in 2019, to reach $48.7 billion.

“The performance of the equipment rental industry since the recession has been very positive and as auxiliary industries recover and grow, we anticipate equipment rental revenue growth to meet the forecast of the next five years,” Christine Wehrman, ARA CEO and executive vice president, said.

“This means equipment rental companies can prepare for steady growth, plan for expanding their markets and build inventory to meet their customer demand. The forecast also shows that many customers who have turned to renting equipment during and after the recession have seen the benefits and will continue to rent to control their costs,” Wehrman added. “The secular shift to rental is here to stay.”

ARA’s research suggests that the ongoing rebound in real residential construction in 2015 will help fuel the growth in the construction and industrial equipment and the general tool rental segments.