After solid growth in 2017, investment in equipment and software will likely continue to strengthen in 2018 and is projected to expand 8.5 percent, according to the Q2 update to the 2018 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. The projection is down from 9.1 percent in the Economic Outlook published in December.

Business investment is expected to expand robustly, and stable credit conditions should foster an environment conducive to growth. Overall, the economy is expected to grow 2.7 percent in 2018 (unchanged from the previous Outlook). The quarterly report by the Foundation, which is focused on the $1 trillion equipment leasing and finance sector, highlights key trends in equipment investment and places them in the context of the broader U.S. economic climate.

“Business conditions continue to be favorable and are forecasted to be strong throughout 2018. As businesses implement their capital expenditure strategies in regard to tax reform, many equipment finance organizations are expecting the remainder of 2018 to expand the funding of transactions,” said Jeffry D. Elliott, Foundation Chairman and Senior Managing Director of Huntington Equipment Finance.

Highlights from the study include:

• 2018 capital spending should remain on solid footing despite a slight increase in financial stress, and investment in equipment and software is expected to grow by 8.5 percent. Credit market conditions generally remain healthy, though private-sector loan growth has moderated in recent months. This is in part due to rising interest rates and increased cash flow from tax reform that have combined to push some businesses toward cash financing.
• Overall, the economy should grow at a relatively steady pace over the course of the year, despite what appears to be a softer-than-anticipated first quarter. The labor market will continue to firm and should result in increased consumer spending, while business investment will likely be a major bright spot in the coming year as tax cuts and a lighter regulatory touch encourage capex spending.
• Sustained economic growth and an increasingly tight labor market are also anticipated and will continue to put upward pressure on inflation, leading the Federal Reserve to lift its benchmark interest rate three more times in 2018, for a total of four rate hikes over the year.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the 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 of the 12 verticals based on recent momentum and historical strength. Overall, investment in most equipment verticals should remain solid in 2018. Over the next three to six months:

• Agriculture machinery investment growth may slow somewhat.
• Construction machinery investment growth should remain strong.
• Materials handling equipment investment growth should remain solid.
• All other industrial equipment investment growth may decelerate.
• Medical equipment investment growth may have peaked and is likely to decline.
• Mining and oilfield machinery investment growth may weaken but remain positive.
• Aircraft investment growth is likely to soften.
• Ships and boats investment growth is expected to decline.
• Railroad equipment investment growth may decline modestly.
• Trucks investment growth is expected to remain positive.
• Computers investment growth should remain strong.
• Software investment growth should remain steady.

The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research LLC. 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 Q2 report is the first update to the 2018 Annual Outlook and will be followed by two more quarterly updates prior to the publication of the 2019 Annual Outlook in December.

Download the full report at https://www.leasefoundation.org/industry-resources/u-s-economic-outlook/. All Foundation studies are available for free download from the Foundation’s online library at http://store.leasefoundation.org/.