The Economy

Slow-to-No Business Investment Growth Seen

A sputtering economy, a contraction in trade, and political uncertainty are having an impact on U.S. business investment, says the ELFF.
Christopher HosfordJuly 13, 2016
Slow-to-No Business Investment Growth Seen

Business investment is slowing down dramatically amid a sputtering global economy, heightened political uncertainty, a contraction in trade, and low commodity prices, according to the Equipment Leasing & Finance Foundation.

Equipment and software investment is expected to increase by just 0.9% this year, down from 2015’s 3.8% growth, according to the foundation’s third-quarter update of its Equipment Leasing & Finance U.S. Economic Outlook.

Although investment should rebound somewhat in the months ahead, the poor first quarter performance will limit overall investment growth for the year, according to the foundation’s report.

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“Sluggish growth in equipment and software investment projected over the short term by this latest analysis is indicative of the slowdown in business fixed-investment reported by federal government data over the past several quarters,” said Ralph Petta, foundation president and CEO of the Equipment Leasing and Finance Association. “This slow-growth scenario, in all likelihood, will continue for the rest of the year as many ELFA members report soft business conditions.”

Business investment in a variety of industries shows similarly muted activity. Weak short-term growth, if any, will be experienced in investments in agriculture and construction machinery and ships and boats, says the report. Investment growth in both railroad equipment and mining and oilfield machinery will likely remain negative.

On the other hand, software investment growth is poised to remain solid, while investment in computers will grow modestly along with materials-handling equipment and medical equipment, the report noted. Investment growth in trucks should be subdued, but a turnaround may be on the horizon.

The report also made note of a modest increase in business demand for credit, and the generally good heath of credit markets overall, which may enable a small revival in business investment later in the year.

While the foundation finds the U.S. economy supported by generally healthy domestic fundamentals, it expects the economy to expand by only 2.2% this year, with market confidence dampened by uncertainties over the Brexit referendum, declining global trade, and a persistently strong U.S. dollar.