Equipment Leasing Growth Slow, But Positive
The U.S. economy is largely in the same position it's been in for the past six months — improving fundamentals weighed down by a number of headwinds resulting in subpar growth, according to the Q4 update of the "2013 Equipment Leasing & Finance U.S. Economic Outlook" by the Equipment Leasing & Finance Foundation.
Among the positive drivers, the housing market is still in recovery mode, inexpensive natural gas continues to benefit households and the industrial sector, auto sales remain above 15 million units (annualized rate), rising household wealth is buoying consumer confidence, credit availability is steadily improving for households and businesses, and job gains have been steady. However, a number of snags, including fiscal consolidation, rising oil prices and renewed fiscal policy tensions, continue to constrain growth.
The report adds that the overall U.S. economy will generate positive but slow growth of 1.7% in 2013.
Equipment and software investment slowed from 3.1% annualized growth in 2013's Q1 to just 1.0% in Q2. Slower growth is a reflection of broader macroeconomic headwinds and uncertainty, but also categorical revisions to the Bureau of Economic Analysis's equipment investment accounts. Looking ahead, a modest uptick in investment through the end of the year, with an overall forecast of 3.3% growth for 2013 is expected. Specific sector predictions include:
• Agriculture equipment investment is expected to remain weak on a quarter-to-quarter basis, but unusually poor performance in Q3 2012 could translate into positive annual growth in the second half of 2013.
• Computers and software investment is expected to grow at a slower pace than observed over the past several years. Annual growth should be in the 0 to 3% range during Q3 and Q4 of 2013.
• Construction equipment investment continued its rapid growth, up 38% year-over-year in Q2 as investment has continued to grow at what is likely an unsustainable rate. Leading indicators all decelerated recently, suggesting that a negative correction could occur within the next three to six months.
• Industrial equipment investment grew 1.4% year-over-year in Q2, and is expected to grow at a slightly faster rate in 2013's second half.
• Medical equipment investment indicators look bleak, suggesting little to no growth going forward.
• Transportation equipment investment is expected to improve some and grow 2-5% year-over-year moving forward.
In addition, the report states that credit market conditions are steadily improving, with a number of indicators continuing to recover to levels not seen since the onset of the recession. On Sept. 18, Fed Chairman Ben Bernanke surprised financial markets by announcing that the current pace of quantitative easing would be maintained. Upon the news, stocks, bonds, commodities and most all other asset classes rallied.
Since then, the report adds, there has been some unease in financial markets, as there is a perceived lack of clarity from the Fed regarding its timeframe for "tapering" bond purchases. Over the past few months, there has been a steady upward drift in long-term interest rates, which has flowed through to slightly higher mortgage rates. However, financial stress remains subdued and corporate and household balance sheets are relatively clean.