Equipment purchasing market expects growth in 2017

Business-friendly administration in Washington may fuel more spending confidence, report finds.
By Bob Vavra January 27, 2017

Courtesy: CFE MediaA more business-friendly environment in Washington could lead to growth in capital spending and economic growth in the equipment purchasing sector, according to a new report from the Equipment Leasing and Finance Association (ELFA).

In its annual top 10 trends report, ELFA officials said the expected relaxation of regulations and could lead to increased capital investments in the coming year. ELFA used its own foundation’s 2017 Equipment Leasing & Finance U.S. Economic Outlook, along with input from the industry. ELFA’s top 10 equipment acquisition trends for 2017:

1. Look for capital spending to pick up in 2017 after the previous year’s negative equipment and software investment growth. After overall negative growth in 2016, equipment and software investment is on track to improve in 2017. Renewed enthusiasm by business owners to make capital investments will be driven by solid employment rates, rising incomes and higher business confidence.

2. Expect growth of financed equipment acquisitions to outpace growth in total equipment investment. Growth in equipment and software investment this year will be exceeded by growth in equipment financing as the propensity to finance has increased. A reduced rate of cash outlays, a greater percentage of firms financing-nearly 8 in 10 businesses-and an increase in the rate of lease financing, along with market data indicating that the equipment leasing and finance industry is emerging from a period of slow growth, all point to higher investment in 2017.

3. More business-friendly federal policy will bolster business investment and economic growth. Businesses will be further induced to make capital investments with promised action from the new Trump Administration and Congress for infrastructure spending, tax relief and reduced regulations and other constraints. These fiscal and regulatory policies will contribute to moderately strong growth for the U.S. economy, and somewhat higher growth for equipment and software investment in 2017. However, a tempering influence to this growth scenario is the potential curtailing or elimination of interest deductibility as part of congressional efforts to reform the tax code.

4. Changes in trade policy will risk headwinds for equipment exports. Businesses will also be following developments from the Trump Administration for a less-friendly trade environment. The potential for exiting the Trans-Pacific Partnership, renegotiating or withdrawing from the North American Free Trade Agreement and striking a sterner stance with China could spur retaliations from trading partners that hinder exports and economic growth.

5. The oil industry drag on the U.S. economy will cease. The oil price freefall that sent oilfield and mining investment plunging has steadied. With sector spending showing positive growth after two years and the prospect of a friendlier regulatory environment, expect increased oil industry production and investment.

6. Many key equipment verticals will benefit from positive momentum. Changes in market and economic conditions will be good news for a number of previously underperforming equipment verticals this year. Stabilizing oil prices will positively impact not only oilfield and mining investment, but also railroad, materials handling and industrial equipment. Look for increased construction equipment investment due to improving personal consumption and promised infrastructure spending.

7. Businesses will need to keep abreast of interest rate increases. A non-issue since the Great Recession, expect additional rate increases this year after the December 2016 hike. Businesses will need to assess and plan for financing options accordingly as the Fed acts to keep inflation in check.

8. Innovations in the equipment finance industry will increase flexibility and convenience for customers. End-users seeking value-added benefits for ease of access and process improvements will find them when financing equipment this year. The availability of "fintech" as an alternative method of financing, managed solution transactions to realize the benefits of aligning costs with business demands and avoid obligations of ownership, and e-chattel for efficient paperless transactions are just a few of the growing trends to watch in equipment finance this year.

9. Lease accounting changes won’t deter financed equipment acquisitions. Changes approved by the Financial Accounting Standards Board in 2016 to bring leases on-balance sheet weren’t as burdensome as many had anticipated, and the primary reasons to lease remain intact under the new rules. This year will see organizations preparing in earnest for the new standard to take effect in 2019.

10. Businesses will watch for potential "wild cards" when considering equipment acquisition decisions. Despite many favorable factors for equipment spending this year, U.S. businesses will be keeping an eye on developments on numerous fronts. The impacts of geopolitical shifts such as the U.K.’s Brexit and the prominence of the National Front in France and other groups that are contrary to liberal, free-market, international order could be financially, politically and even militarily disruptive. Also, the passage of the new Administration’s promised infrastructure spending will depend on the size, design and level of political support. Finally, the long-term economic implications of terrorism are not known.

-Bob Vavra, production manager, Plant Engineering, CFE Media,