After declines in equipment and software investment in Q1 and Q2 due to the effects of Covid-19 and social distancing, investment in equipment and software bounced back in Q3. Annualized growth appears likely to remain positive in Q4, bringing the annual equipment and software investment growth forecast to the -4.9 to -6.4 percent range. The forecast for the broader U.S. economy in Q4 is less certain, though annual U.S. GDP growth for 2020 is forecast between -3.8 and -4.8 percent, according to the Q4 update to the 2020 Equipment Leasing & Finance U.S. Economic Outlook.
Highlights from the Q4 update include:
- Equipment and software investment is forecast to grow between 0 and 10 percent (annualized) in Q4.
- Labor market health and the availability of federal stimulus will be critical factors to watch, as will the pandemic’s trajectory. Growth will suffer if another wave hits.
- Though a shade over half of the 1.4 million lost manufacturing jobs have returned and job growth was relatively modest in September, other industry indicators such as shipments and new orders suggest that the manufacturing sector will strengthen in late 2020 and early 2021.
- A majority of small firms are managing to get by for now. Some—perhaps 10 to 20 percent—have been minimally impacted by the recession and are thriving. At the same time, a sizable and growing minority of firms are at heightened risk of closing.
- The Federal Reserve has continued its quantitative easing program in 2020, and financial markets have responded favorably.
The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the Economic Outlook, tracks 12 equipment and software investment verticals. In addition, the Momentum Monitor Sector Matrix provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Momentum readings are below the five-year average in all 12 verticals, and 9 of 12 verticals are accelerating. Over the next three to six months:
- Construction machinery investment growth is likely to remain weak, but recent movement is encouraging.
- Materials handling equipment investment growth is likely to continue contracting.
- All other industrial equipment investment growth is likely to rebound.
- Mining and oilfield machinery investment growth may improve, though the global recession is likely to remain a significant headwind for energy demand.
- Trucks investment growth may have bottomed out and appears likely to improve.
- Software investment growth should continue to strengthen.
