Investment in construction equipment is expected to remain positive and even strengthen over the next three to six months, according to an economic outlook updated by the Equipment Leasing & Finance Foundation. Materials handling equipment investment will remain subdued, mining investment will remain steady, and trucks investment will remain solid, according to the group.
The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor tracks 12 equipment and software investment verticals.
Overall equipment and software investment growth is expected to slow over the remainder of the year, according to the Foundation’s Q4 update to the its 2023 Equipment Leasing & Finance U.S. Economic Outlook. The report revised its annual estimate for investment growth to 3.0%, most of which occurred during the first half of the year.
The report also finds that overall economic growth, which was solid during the first half of the year despite higher interest rates, likely accelerated in Q3 due to strong consumer spending over the summer. As a result, the Foundation raised its annual GDP forecast to 2.3%.
“The Q4 update reports that the U.S. economy posted another quarter of solid growth in Q2, as inflation has returned to a more tolerable—though still elevated—level, and the labor market remains strong,” said Nancy Pistorio, Foundation chair, in a statement. “Looking at the Foundation’s forward-looking Momentum Monitors, most of the 12 verticals’ current momentum readings are below their historical average, suggesting relatively weak near-term investment growth. The good news is that more than half of the industry verticals are recovering or emerging, suggesting that investment conditions should improve next year.”
What does the remainder of 2023 look like?
The U.S. economy expanded at a 2.1% annualized rate in Q2, decreasing slightly from Q1 but defying concerns of a summer slowdown or downturn, according to the report. The labor market has shown remarkable resilience to higher interest rates, and as a result the odds of a soft landing have risen. However, the near-term horizon remains cloudy and headwinds continue to build, including rapidly rising consumer debt and its potential impact on spending.
Equipment and software investment expanded at a 5.3% annualized rate in Q2 after contracting in Q1. However, credit availability continues to tighten and many businesses have adjusted expansion plans in anticipation of slower economic growth later this year. As a result, the Foundation’s investment growth forecasts are modest for both Q3 (1.2% annualized) and Q4 (0.5% annualized).
The manufacturing sector continues to sidewind: output is essentially flat on the year, capacity utilization is slightly below its historical average, and manufacturing job growth has slowed to a crawl. However, growth rates are still modestly positive for both new orders and shipments of core capital goods, and the ISM Purchasing Managers Index rose steadily this summer.
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. Download the full report.
Source: Equipment Leasing & Finance Foundation
