US businesses poised to increase their credit demand as aircraft, trucks & materials handling lead the way

The Equipment Leasing & Finance US Economic Outlook released today by the Equipment Leasing & Finance Foundation (ELFF) forecasts businesses will be encouraged to increase their capital spending with the overall economic expansion.

The ELFF lowered its 2015 equipment and software investment forecast to 5%, down from 6% growth forecast in its 2015 Annual Outlook released in December 2014. The report predicts that an overall expansion in the economy will encourage both large and small businesses to increase capital spending this year, although at a slightly slower pace than in 2014.

It states: “In the US lending to businesses has steadily increased, and businesses appear poised to increase their credit demand. For both large and small businesses, steady economic growth and reduced uncertainty may translate to increased confidence about the future — and, as a result, increased demand for credit.”

The Foundation-Keybridge US Equipment & Software Investment Momentum Monitor, which is included in the report and tracks 12 equipment and software investment verticals, forecasts the following equipment investment activity:

•  Construction machinery investment could pick up over the next three to six months;

•  Materials handling equipment investment growth should remain steady over the next three to six months;

•  All other industrial equipment investment will likely remain steady over the next three to six months;

•  Medical equipment investment growth is expected to remain strong over the next three to six months.

•  Ships and boats investment growth may increase in the next three to six months;

However on the downside:

•  Agriculture machinery investment growth will likely remain negative over the next three to six months;

•  Mining and oilfield machinery investment should continue to decline in the next three to six months;

•  Aircraft investment growth may slow over the next three to six months;

•  Railroad equipment investment growth rates could decline over the next three to six months;

•  Trucks investment growth should remain steady or potentially decline over the next three to six months;

•  Computers investment growth rates could slip over the next three to six months although software investment growth will likely remain stable over the next three to six months.

Equipment Vertical Momentum Relative to 10-year Historical Average

The chart above summarizes the current values of each of the 12 Equipment & Software Investment Momentum Indices relative to the index values for each quarter over the last 10 years. Verticals for which momentum is below the 10-year median are “decelerating,” verticals for which momentum is near the 10-year median are “neutral,” and verticals for which momentum is near the 10-year maximum are “accelerating.”

Note that the current momentum trend for each vertical may differ from the current investment volume. For example, a vertical for which the level of investment activity is low — but which is exhibiting signs of a comeback in the near future based on the momentum suggested by its leading indicators — will be labeled “accelerating” (and vice-versa).

William G. Sutton, CAE, president of the ELFF and president and CEO of the Equipment Leasing and Finance Association, said: “The equipment finance industry has seen positive growth so far in 2015, and….this positive trend is expected to continue throughout the year, driven by a strengthening economy and improved business confidence. Both supply and demand for credit are growing, and although the likelihood of a Fed rate increase later this year could lead to market volatility, it may also encourage businesses to pull forward planned investments in order to lock in current rates before they rise.”