The Equipment Leasing and Finance Association releases their predictions for the coming year.
The Equipment Leasing and Finance Association (ELFA), which represents the $1 trillion equipment finance sector, released the Top 10 Equipment Acquisition Trends for the year in mid-January. According to ELFA CEO, Ralph Petta, “To assist businesses in planning their acquisition strategies, we have distilled recent research data, including the Equipment Leasing & Finance Foundation’s 2016 Equipment Leasing & Finance U.S. Economic Outlook Report, industry participants’ expertise and member input from ELFA meetings and conferences to provide our best insight for the Top 10 Equipment Acquisition Trends for 2016.” The association predicts that 2016 will be a prime year for small businesses to make investments, here’s what else they had to say:
1. US investment in equipment and software will hit a new high in 2016; however businesses will only see moderate growth. Following a sustained period of increased GDP along with manufacturing weaknesses, a global uncertainty, low oil prices, and concerns that the investment cycle may have peaked, businesses will be discouraged from spending. Those factors are expected to moderate investment growth rates.
2. The end of the zero interest rate policy will encourage small businesses to invest before rates increase. After the Federal Reserve enacted the first short-term interest rate increase in nearly 10 years, it’s expected that they’ll gradually make additional rate increases throughout the year. Small businesses that would have been hesitant to spend will likely be more inclined to try to take advantage of current low rates before they continue to increase.
3. The end of the zero interest rate policy will encourage small businesses to invest before rates increase. After the Federal Reserve enacted the first short-term interest rate increase in nearly 10 years, it’s expected that they’ll gradually make additional rate increases throughout the year. Small businesses that would have been hesitant to spend will likely be more inclined to try to take advantage of current low rates before they continue to increase.
4. Businesses will prepare for the new lease accounting rules after years of anticipation. The new standard will change how leases are accounted for on corporate balance sheets; however, it will not impact the ability of companies to acquire equipment to grow their businesses. Under the new rules, the primary reasons to lease equipment such as maintaining cash flow and preserving capital will remain intact.
5. China’s problems will become everyone’s problems. As China experiences a sharp slowdown in their economy, the ripple effect will be felt globally. Since only 7% of U.S. exports are sent to China, our economy will not take as big of a hit as others. However, U.S. manufacturers are likely to feel the impact of reduced demand from China’s trading partners like Russia and Japan, as their economies absorb the effects of China’s slowdown.
6. Equipment investment is gaining momentum, but not for every type of equipment. In the coming year, it is expected that some equipment verticals will account for weakness in business investment, while others simultaneously gain momentum. The underperformers are expected to be agriculture, mining and oilfield, railroad, industrial and materials handling equipment. On the positive side, medical equipment, as well as computers and software are getting stronger. An improving housing sector means construction equipment is also expected to remain solid.
7. The popularity of non-standard financing agreements is likely to increase as customers continue to demand greater flexibility and convenience. However, these deals are not expected to replace standard leases. Customer preference has shifted to managed services that bundle equipment, services, supplies and software, as well as pay-per-use leases and alternative financing. Equipment finance companies are expected to meet customer expectations by finding innovative new ways to fill the demand of making these non-standard financing methods a larger part of their financing.
8. The recent dip in oil prices will continue to impede energy equipment investments. The improved U.S. oil industry efficiency and increased oil supplies from China, Argentina and Iran caused global oil production levels to elevate and Americans to breathe a sigh of relief at the pump for the first time in years. Though the sustained low oil prices were positive for drivers across the U.S., they are expected to continue to dampen energy equipment investments.
9. The 2016 presidential election could mean potential policy shifts. As President Obama’s final term comes to an end, Americans are met with a diverse group of potential candidates. Though it is still unclear now what policy changes should be expected, whoever takes office may make changes that give businesses new factors to weigh when making their equipment acquisition plans.
10. Looming “wild cards” could influence business investment decisions. The future is uncertain for many markets. The housing market is poised for a breakout year and the current low inventory of homes will either cause real estate prices to surge, giving any potential buyers sticker shock, or it will cause construction investment to skyrocket. The U.S. labor market is getting stronger as we finally recover from the recession, which could accelerate wage growth, causing consumer confidence and spending to rise. However, it could also spur inflation and encourage the Federal Reserve to raise interest rates faster than expected. Finally, the darkest wild card is the continuing threat of terrorist attacks. The threat of attacks continues to loom large over many throughout the world in the wake of the Paris attacks. Recently, at a Senate Armed Services Committee hearing on Capitol Hill, top U.S. intelligence officials announced that they predict that terrorists attacks will only increase and they will not only conduct additional attacks in Europe, but also attempt direct attacks on the U.S. homeland in 2016. From a business standpoint, that continued threat could present economic and policy implications that could divert capital spending resources in both the short and long term.