The US Equipment Leasing and Finance Association (ELFA) has revealed its top 10 equipment acquisition trends for 2019, suggesting growth in the sector will continue, with an increasing emphasis on digital solutions.
Ralph Petta, ELFA president and CEO, said: “Equipment acquisition plays a critical role in driving the supply chains across all US manufacturing and service sectors. Equipment leasing and financing provide the source of funding for approximately 60 % of US businesses to acquire the productive assets they need to operate and grow.”
ELFA’s top 10 forecast predicts:
- Capital spending will remain in solidly positive territory. The first half of 2018 saw strong growth in equipment and software investment, driven by a healthy US economy and more preferable tax treatment. Growth slowed in the second half of the year, providing a less robust jumping off point for 2019. After 7.9% growth in equipment and software investment last year, ELFA predicts 4.1% growth in 2019.
- The share of equipment acquisitions that are financed will remain stable. Equipment leasing and finance will remain the most common payment method used by businesses to acquire equipment and software. The propensity of businesses to finance will continue despite rising interest rates, lower tax rates and a strong economy that has resulted in many companies having cash on hand.
- Most key equipment verticals will have solid investment growth. Through the first half of 2019, many equipment verticals will build on or hold steady with the previous year’s positive investment gains, including aircraft, construction, computers, software, materials handling, and ships and boats. Equipment types likely to peak include agriculture, trucking and medical equipment. Investment growth in some verticals may weaken this year as the business cycle matures further.
- US businesses will feel the impact of global economic headwinds. US companies will find conditions in international markets increasingly affecting their own business decision-making in 2019. Among the global trends that will drag on the US economy and capital spending decisions are slowdowns in China, Europe and other major emerging markets; the conflict in US-China trade policy; and global credit tightening.
- Leased and financed acquisitions will get a boost from regulatory and legislative changes. The combined impacts of changes in lease accounting standard ASC 842 and the new federal tax law have provisions that maintain, and in some cases improve on, previous benefits of financing, such as 100% bonus depreciation and expensing of used and new equipment. More precise balance sheet calculations for ratings agencies, lower capitalized asset costs vs. loan or cash purchase, and higher deductibility of interest expense are just a few of the new advantages.
- Technological advancements and avoiding obsolescence will be top priorities of capital spending. Equipment finance businesses across all industries will seek out new technologies for everything from enhancing the end-user experience to increasing efficiencies and managing obsolescence. The ability of these organizations to successfully implement technologies like blockchain, artificial intelligence and robotics will continue to differentiate market leaders from ‘also-rans’.
- Innovations in equipment management will accelerate to meet the growing complexity of setting residual values. Faced with globalization of markets and rapid technological developments that shorten industry cycles and rapidly shift asset values, equipment managers will deploy robust technology platforms and data analytics in combination with their industry expertise to provide residual values. End-users acquiring new and used equipment will benefit from stiff competition and enhanced customer service capabilities.
- Uncertainty around interest rate hikes will increase. Expectations have reduced from five interest rate increases to two during 2019; this will impact both equipment suppliers and end-users that seek funding. A softening global economy could delay planned hikes. Regardless, businesses will stay tuned so they can plan accordingly.
- Federal government activity will pose opportunities and challenges to capital spending. As businesses continue to realize the benefits of federal deregulation, the results of how a divided Congress acts could dampen momentum. Political brinksmanship and dysfunction could make collaboration on legislation more challenging. Bipartisan cooperation could support a long-awaited infrastructure spending bill, but proposed legislation this year is still an unknown.
- External “wild cards” will factor into capital spending decisions. Modest to moderate growth forecasts for business investment could decelerate if trade tensions and tightening credit conditions continue to erode business confidence.
The oil sector has exposure to uncertainty resulting from numerous factors, including falling oil prices, surging US production and a cooling global economy. The weak housing sector shows no clear indications of a rebound as headwinds inhibiting growth remain. Finally, global developments including Brexit terms or the deteriorating economies of some trading partners could impact growth in equipment investment in the US.
For more information on the Top 10 Equipment Acquisition Trends for 2019, visit www.EquipmentFinanceAdvantage.org/rsrcs/articles/10trends.cfm