After a strong rebound in Q1, overall equipment and software investment growth is expected to slow significantly over the remainder of the year, though demand in some end-use markets should remain healthy. The 2022 Equipment Leasing & Finance U.S. Economic Outlook, released today by the Equipment Leasing & Finance Foundation, forecasts equipment and software investment growth of 5.9 percent in 2022, while annualized GDP growth is expected to slow to 1.6 percent this year. The Foundation's report is focused on the nearly $1 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.

Nancy Pistorio, Foundation Chair and President of Madison Capital LLC, said, “As economic conditions have generally worsened over the last several months, this outlook is noticeably gloomier than the last one. The Federal Reserve is hiking rates and yet inflation continues to accelerate. However, the report also indicates there are still several important factors, such as pent-up demand, supporting growth for now for equipment finance firms and the broader economy.”

Highlights from the Q3 update to the 2022 Outlook include:

• Equipment and software investment grew 16 percent (annualized) in Q1 and demand remains strong in several end-use markets for now. However, businesses are contending with ongoing supply chain issues and rapidly rising interest rates, along with historic inflation that is threatening to derail the economy.
• Following negative GDP growth in Q1 downside risks continue to plague the U.S. economy. While the labor market is still strong and consumer spending has largely held up, the economic outlook has soured. Inflation remains the largest concern for businesses, and while the Fed is finally acting aggressively, it is likely to take several months before significant inflation abatement occurs. Another modest GDP contraction in Q2 is likely, and a looming recession in Europe means less demand for U.S. exports in Q3/Q4. Achieving the Fed’s desired “soft landing” will be challenging.
• Manufacturing output has remained strong despite a variety of headwinds facing the industry. Supply chain turmoil and high energy prices remain problematic, and rising borrowing costs are a growing concern. Still, the data point to significant pent-up demand waiting to be fulfilled should supply chains loosen later this year.
• The outlook for Main Street businesses over the remainder of the year has worsened. Small business sentiment has fallen as inflation has accelerated, and hiring has slowed. As the Fed pursues sharply tighter monetary policy to combat inflation, small businesses are likely to feel the effects of higher borrowing costs before they manifest elsewhere in the economy.
• The Fed is aggressively tightening monetary policy, which financial markets expect will continue in the coming months despite concerns of a growth pause or contraction.

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. This month seven verticals are expanding/thriving, two are peaking/slowing, two are weakening/struggling, and one is recovering/emerging. Over the next three to six months, year over year:

• Agriculture machinery investment growth may have bottomed out, but is likely to remain weak.
• Construction machinery investment growth is likely to continue to decelerate.
• Materials handling equipment investment growth may accelerate.
• All other industrial equipment investment growth should remain positive.
• Medical equipment investment growth may strengthen.
• Mining and oilfield machinery investment growth is likely to remain healthy.
• Aircraft investment growth may have bottomed out and could improve.
• Ships and boats investment growth may strengthen.
• Railroad equipment investment growth should remain healthy.
• Trucks investment growth may improve.
• Computers investment growth should remain modestly positive.
• Software investment growth is likely to deteriorate.

The full report of the Momentum Monitor is now available at https://www.leasefoundation.org/industry-resources/momentum-monitor/.

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 Q3 report is the second update to the 2022 Economic Outlook and will be followed by one more quarterly update before the publication of the 2023 Economic 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/.

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