After its strongest growth in over a decade in 2021 and solid performance in Q1, equipment and software investment growth of 4.2 percent is forecast for 2022. Annual U.S. GDP growth for 2022 is forecast at 2.8 percent, according to the Q2 update to the 2022 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. 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.

Nancy Pistorio, Foundation Chair and President of Madison Capital LLC, said, “At such a volatile time, this report provides valuable intelligence on the wide range of conditions that are impacting the U.S. economy and business investment. While it is encouraging that jobs are plentiful, the housing market is strong and the pandemic is unlikely to be a major headwind unless a new variant emerges, the economic outlook is cloudier than it was at the start of the year. However, the equipment finance industry is still expected to expand at a moderate pace.”

Highlights from the Q2 update to the 2022 Outlook include:

• After expanding a robust 13.1 percent in 2021, equipment and software investment is forecast to grow 4.2 percent (annualized) in 2022 as Russia’s war on Ukraine and ensuing uncertainty have muddled the outlook in several end-user markets.
• Though an exceptionally strong labor market and robust housing growth has the U.S. economy on track for 2.8 percent growth this year, downside risks are mounting. Sanctions on Russia, economic turmoil and supply chain shocks are all likely to contribute to sustained high inflation, and the risk of “stagflation” looms.
• The U.S. manufacturing sector held steady in early 2022, but high energy prices and surging costs for other key inputs will likely weigh on activity later this year. Many of the supply chain issues last year appear set to return due to the Russia-Ukraine war and China’s response to COVID surges in major economic centers.
• On Main Street, firms are generally holding their own as of early April, and an end to most pandemic operating restrictions has boosted demand. However, small businesses continue to contend with staff shortages and supply chain disruptions, which are both contributing to soaring inflation.
• The Federal Reserve adopted a more hawkish posture in Q1 as inflation rose. After raising interest rates by 25 basis points (bps) in March, it is expected to raise rates another 100 bps by June, and 200 or more bps by the end of the year. Whether the Fed can reduce inflation without causing a sharp slowdown or recession is a huge unknown.

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. Seven verticals are peaking/slowing, four are accelerating and one is weakening. Over the next three to six months, year over year:

• Agriculture machinery investment growth is unlikely to improve.
• Construction machinery investment growth may continue to decelerate.
• Materials handling equipment investment growth is unlikely to improve.
• All other industrial equipment investment growth is decelerating, but should stay in positive territory.
• Medical equipment investment growth may accelerate.
• Mining and oilfield machinery investment growth will remain in positive territory.
• Aircraft investment growth will likely remain weak.
• Ships and boats investment growth will continue to slow.
• Railroad equipment investment growth should remain elevated.
• Trucks investment growth is unlikely to improve.
• Computers investment growth may accelerate.
• Software investment growth will continue to decelerate, but will likely remain in positive territory.

The full report of the Momentum Monitor is now available here.

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 Q2 report is the first update to the 2022 Economic Outlook and will be followed by two more quarterly updates before the publication of the 2023 Economic Outlook in December. Download the full report here.

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