The Equipment Leasing & Finance Foundation (ELFF) lowered its 2023 annual forecast for investment growth to 1 percent. The group had forecast 4.2 percent growth in its December 2022 forecast.
In making the adjustment, ELFF said “sluggish” growth in investment in equipment and software in the first quarter was the result of a slowing industrial sector and higher interest rates weighing on equipment demand. The report said certain end-user markets may fare better in the months ahead, but a broad economic downturn will drag on investment across the board.
Fleet managers are expecting a similar dampening of expectations. In Construction Equipment’s mid-year report, 65.5 percent of respondents said that their firm has lowered expectations for the year. Much of the decline in outlook has been blamed on supply chain problems.
The ELFF report also predicts sluggish economic growth in Q1 as the economy edges closer toward recession, which the Foundation continues to expect will begin during the second half of the year. Overall, annualized economic growth is forecast to be 0.7 percent in 2023, largely driven by a solid jump-off point at the end of last year.
“Despite the U.S. economy ending 2022 with healthy growth and maintaining some momentum into early 2023, equipment and software investment softened to 2 percent annualized growth in Q4 and remains under pressure,” said Nancy Pistorio, ELFF chair. “The economy is still above water, but most indicators point to slowing growth, and many economists continue to expect a recession to begin later this year.”
The ELFF Q2 update expects the U.S. economy to continue to soften despite a healthy labor market, lower energy prices, and supply chain improvements. Stubborn inflation combined with rising consumer financial stress and a looming debt ceiling showdown will add to financial sector woes. Although a “soft landing” scenario is still achievable, a mild recession is likely, beginning during the second half of 2023.
The manufacturing sector has worked through much of its pandemic-era supply chain backlogs, the report suggest, but measures of supply chain health indicate the industrial sector is in the midst of a protracted slowdown. On the plus side, the sector’s jumping-off point was strong, so while demand is likely to continue to soften this year, the downturn may not be as severe as in past cycles.
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 two are expanding, two are recovering, and eight verticals are weakening. Over the next three to six months, year over year:
- Construction machinery investment growth may have peaked and could start to slow.
- Trucks investment growth is likely to sidewind.
- Materials handling equipment investment growth may pick up slightly.
- Mining and oilfield machinery investment growth may have peaked and could decelerate.
- Agriculture machinery investment growth is likely to weaken further.
- Medical equipment investment growth is unlikely to pick up.
- Aircraft investment growth may have peaked and could decelerate.
- Ships and boats investment growth could decelerate sharply.
- Railroad equipment investment growth may start to cool but will likely remain in positive territory.
- Computers investment growth will likely remain weak.
- Software investment growth may reach a peak.
Source: Equipment Leasing & Finance Foundation
