The Equipment Leasing and Finance Association (ELFA), which represents the $1 trillion equipment finance sector, has revealed its Top 10 Equipment Acquisition Trends for 2016.
Given US businesses, non-profits and government agencies will spend more than $1.6 trillion on capital goods or fixed business investment (including software) in 2016, financing a majority of those assets, these trends impact a significant portion of the US economy. Businesses will find opportunities for equipment investment as solid market conditions and an improving US economy prevail over global headwinds and potential policy changes.
Ralph Petta, ELFA president and chief executive officer, said, “Equipment acquisition is critical in driving the supply chains across all US manufacturing and service sectors. Equipment leasing and financing provide the source of funding for a majority of US businesses to acquire the productive assets they need to operate and grow.”
ELFA forecasts the following Top 10 Equipment Acquisition Trends for 2016:
1. US investment in equipment and software will hit a new high, but moderate in growth as businesses hold back on spending. Business investment will reach a new all-time high level, but after a sustained period of increasing as a share of GDP, the equipment investment cycle has likely peaked. Manufacturing weakness, global uncertainty, and low oil prices that have discouraged businesses from spending will further moderate investment growth rates.
2. End of zero interest rate policy will spur other businesses, particularly small businesses, to invest before rates go higher. After the first short-term interest rate increase in nearly 10 years, look for the Federal Reserve to act gradually to make additional rate increases throughout the year. As a result, businesses that may have been hesitant about spending—particularly small firms—may be more inclined to pull the trigger to take advantage of still-low rates before they increase.
3. The growth of equipment acquired through financing will increase solidly, but more slowly. In 2016, a projected $1.627 trillion will be invested in plants, equipment, and software in the United States. Approximately 64% or $1.049 trillion of that investment is expected to be financed through loans, leases, and lines of credit. Despite large volume and a rising propensity to finance, the waning replacement cycle and businesses’ continued hesitancy to expand will slow the rate of growth.
4. Businesses will begin preparing for new lease accounting rules. After many years of anticipating the new lease accounting standard and attendant uncertainty in the marketplace, companies will move forward and prepare to adopt it. Although the new standard will change how leases are accounted for on corporate balance sheets, it will not impact the ability of companies to acquire productive equipment to grow their businesses. The primary reasons to lease equipment will remain intact under the new rules, from maintaining cash flow, to preserving capital, to obtaining flexible financial solutions, to avoiding obsolescence.