Q4 economic outlook forecasts equipment, software investment growth at 4.3 percent

The Equipment Leasing & Finance Foundation released its Q4 update to the 2017 Equipment Leasing & Finance U.S. Economic Outlook.

It forecasts investment in equipment and software to grow 4.3% in 2017, up from 3.6% forecast in the Q3 Outlook. The report focuses on the $1 trillion equipment finance industry, and includes equipment investment expectations for 12 key verticals in the Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor.

Equipment and software investment has grown at a solid pace in 2017, driven by the combination of elevated business confidence, a recovering oil sector and the release of pent-up investment following last year’s poor performance. A strong labor market and improved global growth prospects should boost economic growth through the rest of the year, although a soft housing market and geopolitical tensions are significant headwinds to monitor.

Several sources of uncertainty, including federal policy debates on taxes and trade, wage growth, and the hurricane aftermath, create outstanding risks and opportunities for the industry.

  • Agriculture Machinery investment growth may improve modestly over the next two quarters.
  • Construction Machinery investment growth is likely to decelerate over the next three to six months.
  • Materials Handling Equipment investment is expected to strengthen over the next three to six months.
  • All Other Industrial Equipment investment should continue to improve over the next three to six months.
  • Medical Equipment investment growth is likely to continue to slow over the next three to six months.
  • Mining & Oilfield Machinery investment growth will continue to rebound over the next two quarters, though growth rates may peak soon.
  • Aircraft investment growth may decelerate over the next three to six months.
  • Ships and Boats investment growth is likely to strengthen over the next three to six months.
  • Railroad Equipment investment growth should improve over the next three to six months, although recent negative movement is notable and should be monitored.
  • Trucks investment growth is expected to rebound over the next two quarters.
  • Computers investment growth should remain solid over the next two quarters.
  • Software investment growth should remain steady over the next three to six months.

U.S. Capital Investment & Credit Markets
U.S. credit conditions remain decent, with virtually no change in supply from last quarter and a moderate weakening in credit demand for both consumers and businesses. The Federal Reserve signaled its intention to reduce its balance sheet and continue to tighten credit conditions over the next several months. However, gradual increases to interest rates is not expected to crimp capital spending growth.

Overview of the U.S. Economy
The U.S. economy remains reasonably solid, despite a weak first quarter and an expected hit to 3Q growth caused by Hurricanes Harvey and Irma. Labor markets are strong, consumer spending continues to grow at a healthy pace and business investment has rebounded from its dismal performance last year.

However, residential investment has disappointed (particularly in the second quarter), while reduced government spending will detract somewhat from U.S. growth prospects. Overall, the economy should grow at a moderately strong pace for the remainder of 2017.

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