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Equipment group: 2019 capital outlay bump stands to best GDP rate

Source: Equipment Leasing & Finance Foundation, Washington, D.C.

Investment in equipment and software is projected to expand 4.1 percent in the new year, during which gross domestic product is set to increase 2.3 percent over 2018. The 2019 Equipment Leasing & Finance U.S. Economic Outlook notes that such investment increased at a robust rate in the first half of 2018, driven by more preferable tax treatment and a general upswing in the U.S. economy. However, growth slowed in the third quarter and recent federal government figures suggest a continuation of the trend, providing a weak jumping off point for 2019. 

“Business conditions in the equipment finance industry remain favorable for the most part, and the majority of equipment verticals should post moderate investment growth for at least the first half of the year,” says Equipment Leasing & Finance Foundation Chairman Jeffry Elliott, senior managing director of Huntington Equipment Finance, Columbus, Ohio.

The 2019 Equipment Leasing & Finance report finds:

  • Capital spending has experienced moderate growth in 2018, though equipment and software investment has waned over the course of the year. While sustained economic momentum should carry capital investment into 2019, growth in plant, fleet and expansion outlays may continue to fade next year as the business cycle matures. Credit market conditions remain healthy, with an increase in the third quarter and subdued financial stress levels.
  • The U.S. economy has accelerated in 2018, spurred by stronger growth in business investment, historically healthy labor market, lower tax rates, and increased government spending. Consumers have been the main driver of growth over the past year, and near-record consumer confidence should keep spending levels elevated through at least the first half of 2019. However, residential investment is likely to remain weak, mounting trade frictions will constrain U.S. exports, and the global economy appears to be losing steam. Overall, while the U.S. economy remains healthy, growth is likely to soften in 2019 compared to the previous 12 months.
  • The equipment leasing and finance industry appears poised to continue expanding into 2019. However, growth is likely to moderate as the effect of tax cuts wanes and the business cycle matures further, while rising interest rates will continue to put upward pressure on financial stress. The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the 2019 Outlook report, tracks 12 equipment and software investment verticals. In addition, the “Momentum Monitor Sector Matrix” provides a customized data visualization of current values of each vertical based on recent momentum and historical strength. Among observations in the study, the first half of 2019 should see investment growth: steady in construction machinery; slow in trucks; remain solid and stable in software and computers, respectively; and, expand moderately in material handling equipment.

The Foundation produces the report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides a three- to six-month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook, and key economic indicators. The report will be updated quarterly throughout 2019 and is posted here.