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Q2 economic outlook forecasts 2.8% growth in equipment and software investment in 2017

Investment in equipment and software is expected to grow 2.8 percent in 2017, according to the Q2 update to the 2017 Equipment Leasing & Finance U.S. Economic Outlook released today by the Equipment Leasing & Finance Foundation. The Foundation lowered its 2017 equipment and software investment forecast to 2.8%, down from 3% growth forecast in its 2017 Annual Outlook released in December 2016.  The report predicts that equipment and software investment will improve in 2017 after a lackluster 2016, as renewed business confidence and firming energy prices lift the potential for business investment and capex spending while reducing uncertainty. The Foundation’s report, which is focused on the $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. The report will be updated quarterly throughout 2017.

Ralph Petta, President of the Foundation and President and CEO of the Equipment Leasing and Finance Association, said, “Our forecast for an improving equipment finance sector is based largely on actions coming out of Washington that indicate a more business-friendly approach by the new Trump Administration, the recent move by the Fed to gradually increase short-term interest rates, and early indications of a steadily growing economy. It is our hope that these factors do in fact provide impetus for the equipment finance industry this year to outperform 2016.”

Highlights from the study include:

•   Equipment and software investment is expected to grow by 2.8% in 2017, a significant improvement over the -1.1% contraction in 2016. After negative growth for most of last year, equipment and software investment increased 1.7% in Q4 2016 and appears likely to resume a growth trajectory in 2017, particularly if elevated business confidence leads to increased business investment.

•   The U.S. economy appears to be on solid footing, despite an underwhelming finish to 2016 and slow start in 2017. Business investment and manufacturing activity continue to lag, but industry confidence indices point to an improved investment picture during the second half of the year. Overall, the U.S. economy is projected to grow 2.5% in 2017—similar to 2014 and 2015, but a significant improvement over 2016.

•   Bolstered by a tightening labor market, healthy consumer spending, improved growth in international markets and the potential for broad-based domestic regulatory reform, the U.S. economy has reason for cautious optimism in 2017. However, economic headwinds, including risks associated with weak export growth, industrial sector sluggishness and government gridlock should temper expectations.

•   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 new “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. Most equipment verticals should expect their growth outlook to improve in 2017 relative to 2016. Over the next three to six months:
o   Agriculture machinery investment growth should remain sluggish.
o   Construction machinery investment growth is likely to accelerate.
o   Materials handling equipment investment is likely to grow at a slow but stable pace.
o   All other industrial equipment investment growth should improve.
o   Medical equipment investment growth may slow.
o   Mining and oilfield machinery investment growth should improve.
o   Aircraft investment growth may strengthen.
o   Ships and boats investment growth is expected to expand.
o   Railroad equipment investment growth should rebound.
o   Trucks investment growth should strengthen.
o   Computers investment growth may modestly improve.
o   Software investment growth is likely to remain stable or slow modestly.

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 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 2017 Annual Outlook, and will be followed by two more quarterly updates before the publication of the 2018 Annual Outlook in December.  Download the full report at www.leasefoundation.org/research/eo/.

COMING SOON: The Foundation will add to its library of strategic resources in the coming weeks with the release of Industry Snapshot, a presentation slide deck summarizing the current conditions of the U.S. economy and equipment finance industry. Produced by Keybridge Research and updated quarterly, the Industry Snapshot will comprise clear, easy-to-digest charts and short narratives of key economic and industry trends. It’s an indispensable resource -- ideal for incorporating into your organization’s executive briefings and presentations. Visit http://www.leasefoundation.org/research/eo/snapshot.cfm for more information.
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