2024 Equipment Leasing & Finance U.S. Economic Outlook
This comprehensive report analyzes global and domestic trends impacting capital spending and economic growth in the coming year. It identifies signposts specific to the equipment finance industry and highlights key verticals, featured in the monthly Momentum Monitor, that identify turning points in their respective investment cycles. Each economic outlook is updated quarterly.
Report Summary -
Equipment and Software Investment: Equipment investment was negative for the second consecutive quarter, but continued strength in software investment led to overall E&S growth of 3.2% (annualized) in Q4. Economic conditions are generally positive, however, and we expect a modest improvement in investment activity later this year.
Momentum Monitor: The near-term outlook for equipment and software investment activity is mixed. Investment growth in Medical Equipment and Construction Machinery is likely to strengthen, and both Computers and Agricultural Machinery show promise. Other verticals, including Other Industrial Machinery and Mining & Oilfield Equipment, are likely to struggle.
Manufacturing: While the auto industry has recovered from last fall’s UAW strike, overall manufacturing activity remains soft. Industrial production and capacity utilization have worsened for most of the last 18 months, and manufacturing hours worked are weak. One potential bright spot is the ISM Purchasing Managers Index, which moved back into expansion territory in March.
Small Businesses: Despite a general consensus that the U.S. economy remains on track for a soft landing, small business owners have a somewhat pessimistic outlook. Concerns regarding inflation are heightened, and both hiring and investment plans have slowed.
Fed Policy: The Federal Reserve remains cautious and has not begun its long-awaited rate cut cycle, as progress toward its 2% target stalled in Q1. With job growth still robust, Fed officials are unlikely to begin cutting rates until late summer or fall. We now expect two rate cuts in 2024.
U.S. Economy: The U.S. economy continues to hum, driven by solid consumer spending and surprisingly robust job growth, even as equipment investment has been weak. The Fed’s commitment to “finish the fight” against inflation means that borrowing costs remain elevated, however, presenting affordability challenges for prospective homebuyers and car owners. Meanwhile, a slowdown in global economic growth prospects may impair business investment and reduce demand for U.S. exports.
The biggest X-factor, however, may be the willingness of consumers to continue opening their wallets as debt levels rise and real disposable income slows. Our view is that both job growth and consumer spending will slow but remain healthy while inflation will inch toward the Fed’s 2% target over the course of the year. A soft landing remains the most likely outcome.