High Oil Prices Drag Down Positive Growth Trends
The Equipment Leasing & Finance Foundation released the first quarterly update to its 2012 Equipment Leasing & Finance U.S. Economic Outlook today. The report is focused on the $628 billion industry and forecasts equipment investment and capital spending in the United States, and evaluates the effects on various related and exogenous factors in play currently and into the foreseeable future.
The Q2 Outlook forecasts healthy growth year over year, although the projected growth for 2012 has slowed to 7 percent from the previous outlook of 9 percent. This decline is due to a slight downgrade of growth prospects, including the expectation that high oil prices will be a significant drag, particularly during the first two quarters of the year.
“The Equipment Leasing & Finance U.S. Economic Outlook complements the Foundation’s Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) and the Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25) in providing a forward-looking projection of industry and economic conditions affecting the $628 billion equipment finance sector from the historical, present and future perspectives,” said William G. Sutton, CAE, president of the Foundation and president and CEO of the Equipment Leasing and Finance Association.
“While the recent MCI and MLFI Indexes have reported an increase in confidence and continued growth, the steady but slower growth rate reported in this new Outlook reflects the impact external factors have on equipment investment over a broader stretch of time.” Sutton added “We remain cautiously optimistic.”
Overall, investment continues to be a main driver of U.S. economic growth. In particular, investment in equipment and software has grown steadily for eight straight quarters. Expectations for 2012 are that growth will moderate slightly but remain positive overall.
Trends in equipment investment include:
- Agriculture equipment investment is likely to decelerate slightly in the next three to six months.
- Construction equipment investment is likely to slow in the immediate near term, but could be buoyed by the energy and housing sectors later in 2012.
- Industrial equipment investment will likely be hampered by macro-trends, which may cause some deceleration in growth from what appears to be a recent peak in the growth rate.
- Transportation equipment investment should remain solidly positive, but is unlikely to maintain the rapid growth rates of 2011.
- Credit market conditions are improving slowly as demand for financing grows and supply constraints gradually ease. Conditions remain favorable for purchasing versus leasing, though the expiration of tax benefits may provide a marginal boost to leasing. Otherwise, interest rates are near record lows and are likely to remain low through 2012.
- A triple threat of headwinds continues to drag down growth—high oil prices, uncertainty surrounding the Eurozone debt crisis, and a slowdown in China and other emerging markets.
Overall, the macro outlook for 2012 calls for a slow improvement, as high oil prices continue. Real U.S. gross domestic product (GDP) growth of 2.3 percent is forecast (down from 2.4 percent in December), and inflation is forecast to average 2.4 percent for the year. Looking to the second half of the year, notwithstanding an external shock, the U.S. is poised for faster growth driven by pent-up demand in the consumer and business sectors.
The foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economics 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 report will continue to be updated quarterly throughout 2012.