Equipment leasing and finance economic update
Q3 update to the 2024 economic outlook forecasts 3.7 percent expansion in equipment and software investment, 2.3 percent GDP growth.
Midway through the year, the outlook for a soft landing has strengthened, driven by easing inflation and a robust labor market, according to the Q3 update of the 2024 Equipment Leasing & Finance U.S. Economic Outlook.
Real equipment and software investment growth is projected to be 3.7 percent in 2024, with activity expected to pick up later in the year after the Fed lowers interest rates.
The report, which was prepared by Keybridge and released today by the Equipment Leasing & Finance Foundation, also forecasts real GDP growth of 2.3 percent this year, unchanged from the Foundation’s Q2 update to the 2024 Economic Outlook published in April.
The Foundation's report is focused on the $1.16 trillion equipment leasing and finance industry and highlights key trends in equipment investment, placing them in the context of the broader U.S. economic climate.
“The economy is poised to stick the soft landing according to the Foundation’s Q3 economic outlook. Inflationary pressures are easing, which should allow the Fed to lower rates at least once in 2024. An easing Fed means lower borrowing costs, a welcomed development for households who are feeling financially strained and businesses looking to invest. That latter point is important as our latest Momentum Monitor suggests that investment in the equipment finance industry may be uneven over the second half of the year. Overall, we expect equipment and software investment to continue to expand at a moderate pace in 2024,” says Leigh Lytle, president of the Foundation, and president/CEO of the Equipment Leasing and Finance Association.
Highlights of the Q3 update:
- Equipment investment expanded in Q1 after contracting for three quarters in 2023. Transportation equipment investment remains in negative territory, while information processing equipment and software investment lead growth, driven in part by AI-related investment. Industrial equipment also expanded at a healthy rate.
- At the year’s midway point, the U.S. economy is a mixed bag. On the positive side, the labor market remains healthy, wage growth is solid, and the Fed continues to make progress against inflation. At the same time, consumer demand is slowing for several reasons, including weaker disposable income growth, “inflation fatigue,” and rising financial stress. Business activity also appears to be slowing, both in the manufacturing sector as well as service sector industries as consumers tighten their belts. Overall, a recession in 2024 remains unlikely, but breakout growth is also unlikely. A soft landing looks like the best bet.
- The manufacturing sector is expected to remain soft over the next few months. After cresting briefly into expansionary territory in March, ISM’s Manufacturing PMI, a key indicator of sector performance, has declined for three consecutive months. Industrial production held steady, but many manufacturers appear hesitant to invest in capital expenditures and inventories given the current business environment.
- Optimism on Main Street has improved marginally as inflation has eased. Small business owners are still feeling the pinch of high interest rates and inflation, however, as rents rise 12 percent year over year and consumer demand slows. In line with overall economic growth, Main Street economic activity is expected to expand modestly over the remainder of the year.
- Inflation cooled in Q2, a welcome development after multiple too-hot-for-comfort readings earlier in the year. While it’s too soon to declare victory, inflation should remain subdued over the next few months given softening demand and the increased prevalence of price discounts. As a result, we expect the Fed to cut rates twice in 2024.
The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the Economic Outlook, tracks 12 equipment and software investment verticals. In addition, the Momentum Monitor Sector Matrix provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. This month five verticals are expanding, two are peaking, two are recovering, and three are weakening. Over the next three to six months, the Foundation expects the following trends to materialize on a year-over-year basis:
- Agriculture machinery investment growth should remain strongly positive.
- Construction machinery investment growth is likely to contract.
- Materials handling equipment investment growth will weaken and could turn negative.
- All other industrial equipment investment growth may begin to improve.
- Medical equipment investment will weaken and may turn negative.
- Mining and oilfield machinery investment growth will remain negative.
- Aircraft investment growth should improve.
- Ships and boats investment growth may have bottomed out but is unlikely to turn positive.
- Railroad equipment investment growth should remain steady.
- Trucks investment growth should improve.
- Computers investment growth should strengthen.
- Software investment growth is likely to remain solid.
The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides the U.S. macroeconomic outlook, credit market conditions, and key economic indicators. The Q3 report is the second update to the 2024 Economic Outlook and will be followed by one more quarterly update before the publication of the 2025 Economic Outlook in December.
Download the full report at https://www.leasefoundation.org/industry-resources/u-s-economic-outlook/.
Download the Momentum Monitor at https://www.leasefoundation.org/industry-resources/momentum-monitor/.
All Foundation studies are available for free download from the Foundation’s online library at http://store.leasefoundation.org/.
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