Owing largely to the burst of business activity in the spring and early summer that came in part thanks to rising vaccination rates, annual equipment and software investment growth of 13.2 percent is forecast for 2021, according to the Q4 update to the 2021 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. Annual U.S. GDP growth for 2021 is forecast at 5.3 percent. The Foundation’s report, which is focused on the nearly $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 Q4 update indicates that optimism eased somewhat as the spread of the COVID-19 Delta variant began weighing on consumer confidence and economic activity,” said Scott Thacker, foundation chair and chief executive officer of Ivory Consulting Corp. “The trajectory of the virus this fall and winter, inflation, and fiscal policy are the most significant unknowns to consider during the upcoming six months. Fortunately, the overall outlook portrayed in the Q4 update is more optimistic than it was a year ago. Businesses continue to invest despite supply chain issues and labor shortages, which bodes well for the equipment finance industry.”
Highlights from the Q4 update to the 2021 Outlook include:
- Equipment and software investment rose 12.7% (annualized) in Q2 and is well above its pre-pandemic level. Business investment has remained strong despite emerging economic headwinds, though these headwinds could begin to weigh on investment later this year.
- The U.S. economy expanded at a robust 6.7% (revised) annualized rate in Q2 2021, about the same pace as in Q1. GDP has now eclipsed its level from the end of 2019, just before the pandemic began.
- The U.S. manufacturing sector continues to face historically high levels of demand, although growth decelerated over the last quarter. Meanwhile, U.S. industrial output has been constrained by ongoing supply chain issues and high input prices.
- Federal Reserve officials largely maintain that ongoing inflationary pressures are mostly temporary. However, officials have signaled that the Fed is ready to begin “tapering” its asset purchases soon, which would translate to tighter financial conditions.
- The spread of the Delta variant has dampened activity in some areas and has likely slowed economic growth significantly in Q3. Factors to watch for the rest-of-year outlook include concerns of persistently high inflation, uncertainty surrounding fiscal policy, the potential for tighter financial conditions that could impact equity markets, and the trajectory of the pandemic.
You can download the full report at the Equipment Leasing and Finance Foundation website.