ELFA’s Top 10 trends for 2016

The Equipment Leasing and Finance Association (ELFA) has revealed its Top 10 list of acquisition trends for the coming year, when it predicts many equipment sectors are poised for growth amid what it is calling a “moderate” business investment environment.

They are:

• US investment in equipment and software will hit a new high, but moderate in growth as businesses hold back on spending. ELFA says after a sustained period of increasing as a share of GDP, the equipment investment cycle has likely peaked. Manufacturing weakness, global uncertainty and low oil prices that have discouraged businesses from spending will further moderate investment growth rates.
• The end of the zero interest rate policy will spur other businesses, particularly small businesses, to invest before rates go higher. After the first short-term interest rate increase in nearly 10 years, ELFA expects the Federal Reserve to act gradually to make additional rate increases throughout the year. As a result, businesses that may have been hesitant about spending—particularly small firms—may be more inclined to pull the trigger to take advantage of still-low rates before they increase.
• The growth of equipment acquired through financing will increase solidly, but more slowly. In 2016, a projected $1.627 trillion will be invested in plant, equipment and software in the US. Approximately 64%, or $1.049 trillion of that investment, is expected to be financed through loans, leases and lines of credit. Despite large volume and a rising propensity to finance, the waning replacement cycle and businesses’ continued hesitancy to expand will slow the rate of growth.
• Businesses will begin preparing for new lease accounting rules. After many years of anticipating the new lease accounting standard and attendant uncertainty in the marketplace, companies will move forward and prepare to adopt it. Although the new standard will change how leases are accounted for on corporate balance sheets, it will not impact the ability of companies to acquire productive equipment to grow their businesses, ELFA says. 
• China’s economic woes will be a global concern. A sharp slowdown in China’s economy will be a threat to global growth this year. While the US economy is somewhat insulated (only about 7% of US exports are shipped to China), US manufacturers will feel the impact of reduced demand in China as well as its trading partners (e.g., Russia and Japan) as their economies absorb the effects of China’s slowdown. 
• Equipment investment will vary widely by industry vertical. ELFA expects a handful of equipment verticals to account for weakness in business investment, and others to gain momentum. Among the underperforming equipment types are agriculture, mining and oilfield, railroad, industrial and materials handling equipment. Medical equipment, computers and software are strengthening and construction equipment should remain solid with an improving housing sector.
• Customer demand for greater flexibility and convenience will increase the use of non-standard financing agreements. Shifts in customer preferences for managed services (bundling equipment, services, supplies and software), pay-per-use leases and alternative financing will spur equipment finance companies to find innovative ways to fill the demand. 
• Low oil prices will continue to impede energy investment. In 2016, global oil production will remain elevated due to factors including improved US oil industry efficiency and increased supply from China, Argentina and Iran. The result is likely to be sustained low oil prices, which will continue to dampen energy equipment investment.
• The potential outcomes of the 2016 presidential election and their related policy implications will give businesses new factors to weigh when making their equipment acquisition plans, with ELFA joining a number of other commentators in anticipating changes once the new incumbent is known.
• Looming “wild cards” could influence business investment decisions, including how the housing and labor markets develop over the year and continuing concerns over terrorism.