Washington, D.C. — The Equipment Leasing and Finance Assn. (ELFA) which represents the $1 trillion equipment finance sector, today revealed its Top 10 Equipment Acquisition Trends for 2016. Given U.S. businesses, nonprofits and government agencies will spend over $1.6 trillion in capital goods or fixed business investment (including software) this year, financing a majority of those assets, these trends impact a significant portion of the U.S. economy. Businesses will find opportunities for equipment investment as solid market conditions and an improving U.S. economy prevail over global headwinds and potential policy changes.
Here's a summary of ELFA's forecast and you can view the full report here.
1. U.S. 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 Gross Domestic Product, the equipment investment cycle has likely peaked.
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.
3. The growth of equipment acquired through financing will increase solidly, but more slowly. 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. 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.
5. China’s economic woes will be a global concern. A sharp slowdown in China’s economy will be a threat to global growth this year.
6. Equipment investment will vary widely by industry vertical. Among the underperforming equipment types are agriculture, mining and oilfield, railroad, industrial and materials handling equipment.
7. Customer demand for greater flexibility and convenience will increase the use of non-standard financing agreements. Shifts in customer preferences for managed services (bundling equipment, services, supplies and software), pay-per-use leases and alternative financing will spur equipment finance companies to find innovative ways to fill the demand.
8. Low oil prices will continue to impede energy investment. In 2016, global oil production will remain elevated due to factors including improved U.S. oil industry efficiency and increased supply from China, Argentina and Iran. The result is likely to be sustained low oil prices, which will continue to dampen energy equipment investment.
9. Eyes will be on 2016 presidential election for potential policy shifts. The potential outcomes of the 2016 presidential election and their related policy implications will give businesses new factors to weigh when making their equipment acquisition plans.
10. Looming “wild cards” could influence business investment decisions. Additional factors could present headwinds to equipment investment in 2016. A low inventory of homes in a housing market poised for a breakout year could either cause construction investment to surge or push up home prices and deter would-be buyers.
For a video and infographic highlighting the Top 10 Equipment Acquisition Trends for 2016, go to http://equipmentfinanceadvantage.org/rsrcs/articles/10trends.cfm.
The Equipment Leasing and Finance Assn. (ELFA) is the trade association that represents companies in the $1 trillion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. Its 580 members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers. For more information, please visit www.elfaonline.org. Follow ELFA on Twitter: @ELFAonline