Mixed view on 2016 equipment and software investment

Investment in equipment and software is expected to grow 4.4% in 2016, according to the Annual 2016 Equipment Leasing and Finance US Economic Outlook report released by the Equipment Leasing and Finance Foundation (ELFF), which says prospects for next year look mixed as domestic strength has to battle global headwinds.

The Foundation says the moderate growth forecast reflects economic crosswinds, as weakness in the global economy, particularly China, low commodity prices, and a strong dollar are diminishing businesses’ incentive to invest. However, it also forecasts that a strengthening US economy and elevated propensity to finance should propel growth in the equipment finance sector.

William Sutton, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association (ELFA), said: “Building on the forecast that the equipment finance industry will surpass the $1 trillion mark in 2015, this Outlook for 2016 projects decent, but not robust, equipment finance growth in the coming year.”

The report, which the Foundation produces in partnership with economics and public policy consulting firm Keybridge Research, says equipment and software investment growth rebounded to a 7.4% pace in Q3 2015 from a 1.7% annual pace in Q2 2015.However, investment is up only 2.5% year-on-year—the slowest annual growth rate in two years. Continued moderate growth in equipment and software investment is expected in Q4 2015 and into 2016, the report predicts.

Equipment verticals vary

Additional research included in the report tracks 12 equipment and software investment verticals. In 2016, as in 2015, negative global trends are expected to hurt certain equipment verticals, most notably mining and oilfield machinery investment growth, which is expected to remain strongly negative over the next three to six months.

Investment in materials handling equipment and agriculture machinery will likely remain weak over the period, and most other industrial equipment investment growth is likely to slow, although construction machinery investment growth is set to remain solid.

The report says that ships and boats investment growth is poised to strengthen in the next three to six months, and aircraft investment may also grow, but railroad equipment investment growth is likely to remain negative. Medical equipment investment growth is expected to stabilize over the next three to six months, while investment in computers and software may increase a little.