Owing largely to the burst of business activity in the spring and early summer that came in part thanks to rising vaccination rates, annual equipment and software investment growth of 13.2 percent is forecast for 2021, according to the Q4 update to the 2021 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. Annual U.S. GDP growth for 2021 is forecast at 5.3 percent. The Foundation’s report, which is focused on the nearly $1 trillion equipment leasing and finance industry, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate.

Scott Thacker, Foundation Chair and Chief Executive Officer of Ivory Consulting Corporation, said, “The Q4 update indicates that optimism eased somewhat as the spread of the COVID-19 Delta variant began weighing on consumer confidence and economic activity. The trajectory of the virus this fall and winter, inflation, and fiscal policy are the most significant unknowns to consider during the upcoming six months. Fortunately, the overall outlook portrayed in the Q4 update is more optimistic than it was a year ago. Businesses continue to invest despite supply chain issues and labor shortages, which bodes well for the equipment finance industry.”

Highlights from the Q4 update to the 2021 Outlook include:

• Equipment and software investment rose 12.7 percent (annualized) in Q2 and is well above its pre-pandemic level. Business investment has remained strong despite emerging economic headwinds, though these headwinds could begin to weigh on investment later this year.
• The U.S. economy expanded at a robust 6.7 percent (revised) annualized rate in Q2 2021, about the same pace as in Q1.  GDP has now eclipsed its level from the end of 2019, just before the pandemic began.
• The U.S. manufacturing sector continues to face historically high levels of demand, although growth decelerated over the last quarter. Meanwhile, U.S. industrial output has been constrained by ongoing supply chain issues and high input prices.
• Business prospects for Main Street have been tempered somewhat since the summer as the resurgence of COVID has reduced consumer mobility, spending, and confidence. Small businesses are also contending with labor shortages, supply chain delays, and inflationary pressures, but are better equipped for headwinds due to healthy lending activity and a slow, steady rise in vaccination rates.
• Federal Reserve officials largely maintain that ongoing inflationary pressures are mostly temporary. However, officials have signaled that the Fed is ready to begin “tapering” its asset purchases soon, which would translate to tighter financial conditions.
• The spread of the Delta variant has dampened activity in some areas and has likely slowed economic growth significantly in Q3. Factors to watch for the rest-of-year outlook include concerns of persistently high inflation, uncertainty surrounding fiscal policy, the potential for tighter financial conditions that could impact equity markets, and the trajectory of the pandemic.

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. Eight verticals are showing signs of accelerating investment, and four other verticals are showing signs of peaking. Over the next three to six months, year over year:

• Agriculture machinery investment growth may ease, though year-over-year growth will likely remain in positive territory.
• Construction machinery investment growth will stay elevated.
• Materials handling equipment investment growth should remain robust.
• All other industrial equipment investment growth should remain elevated.
• Medical equipment investment growth will likely remain in positive territory.
• Mining and oilfield machinery investment growth should accelerate.
• Aircraft investment growth will remain elevated, though may have peaked.
• Ships and boats investment growth should remain healthy.
• Railroad equipment investment growth should continue to improve, though upside potential may be limited.
• Trucks investment growth should remain robust.
• Computers investment growth should remain in positive territory and may even accelerate.
• Software investment growth should remain elevated.

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 Q4 report is the third update to the 2021 Economic Outlook and will be followed by the publication of the 2022 Economic Outlook in December.