Q4 2012 Economic Outlook Shows Decelerating Growth in Equipment and Software Investment

The Equipment Leasing & Finance Foundation (the Foundation) recently released a new quarterly update to its 2012 Equipment Leasing & Finance U.S. Economic Outlook. The report, which is focused on the $628 billion equipment leasing and finance industry, forecasts equipment investment and capital spending in the United States and evaluates the effects of various related and external factors in play currently and into the foreseeable future. According to the Q4 outlook, projected growth in equipment and software investment for 2012 is 6.7 percent, down from the 2011 growth rate of 11.0 percent. Growth in equipment and software investment slowed to an annualized rate of 4.8 percent in Q2, down from 5.4 percent in Q1. The report finds that the recent slowdown in durable goods shipments indicates that equipment investment continued to lose momentum in Q3, but should remain positive — albeit at a decelerated pace compared to 2011 — through the rest of 2012.

William G. Sutton, CAE, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association (ELFA), said, “While growth in equipment and software investment is continuing, the pace of growth has decelerated. This finding aligns with the ELFA’s Monthly Leasing and Finance Index, which indicates that equipment finance activity is still growing, but at a slower rate than in 2011. Some sectors, including transportation and construction, continue to improve. However, economic and political uncertainty, especially in the area of tax and budget policy, continues to hamper business investment, as reported both in the Q4 outlook report and the Foundation’s Monthly Confidence Index.”

Click through for a quarterly update from the 2012 Equipment Leasing & Finance U.S. Economic Outlook report.

The U.S. economy continues to grow at an anemic pace, evidenced by weaker-than-expected job creation in the past three months. Although growth in equipment and software investment slowed to an annualized rate of 4.8 percent in the second quarter from 5.4 percent in Q1, it continues to be a driver of growth in an otherwise subdued economy.  

Looking ahead to 2013, natural cyclical forces — particularly housing — should gain more traction and drive growth. However, some fiscal tightening is expected to counterbalance these positive trends. The revised projection for 2013 growth in equipment and software investment is 4.5 percent, down from the original forecast of 8 percent.

Trends in equipment investment include:

• Agriculture equipment investment is likely to decline by 5 to 10 percent in the next three to six months.
• Computer and software equipment investment is projected to grow at a relatively slow pace of one to three percent.
• Construction equipment investment is projected to continue to grow at a strong pace (15 percent+) as the housing market rebounds.
• Industrial equipment investment should grow at a moderate clip of 5 to 9 percent in Q4.
• Medical equipment is likely to grow but at a slow pace of 1 to 2 percent.
• Growth in transportation equipment investment is likely to moderate, but should stay above 15 percent+ over the next three to six months.

Credit market conditions remain in flux and highly reactive to Federal Reserve policy and the latest events in Europe. It is expected that tensions in global credit markets will ease somewhat, and U.S. interest rates should marginally increase in 2013 as the ‘flight to quality” trend slowly unwinds.

The U.S. economy slowed in the second quarter of 2012 to an annualized growth rate of 1.3 percent, down from 2 percent in Q1 2012. Overall, the macro outlook for 2012 has not changed materially. Real GDP growth is holding at 2.2 percent, and inflation expectations dropped from 2.3 percent to 2.1 percent.