Snapshot of the Equipment Leasing and Finance
Description: Snapshot of the Equipment Leasing and Finance Industry and U.S. Economy December 2022 Prepared For: Equipment Leasing Finance Foundation Prepared By: Keybridge LLC Data: Table of Contents 2. Investment 3. Business Health 1. Overall
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slide1. Snapshot of the Equipment Leasing and Finance Industry and U.S. Economy
December 2022 Prepared For:
Equipment Leasing & Finance Foundation
Prepared By:
Keybridge LLC<br>
slide2. Data: Table of Contents 2. Investment 3. Business Health 1. Overall Economy p. 3 2 p. 8 p. 11<br>
slide3. Forecast Source: U.S. Bureau of Economic Analysis, Keybridge LLC 3 The economy expanded in Q3 2022 following two consecutive quarters of decline, growing 2.9% (SAAR), largely due to robust net exports. Economy 30-Year Quarterly Average = 2.6% +0.7% Real GDP Growth
Annualized % Change from Prior Quarter 35.3% -29.9%<br>
slide4. The Q3 expansion was driven by a large increase in net exports and strong consumer spending, which offset a decline in business investment. 4 Source: U.S. Bureau of Economic Analysis, Keybridge LLC Economy HEADWINDS [-2.54] +0.83 GDP CHANGE
[+2.93] +2.93 Consumer Spending Other Investment -2.54 +1.18 Government Spending E&S Investment Tailwinds & Headwinds
Contributions to GDP growth by sector Net Exports +0.53<br>
slide5. Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook 5 Top Economic Tailwinds ECONOMIC TAILWINDS The economy added 261k jobs in November and job openings remain well above pre-pandemic levels.
However, recent signs that wage growth may be accelerating could be a concern for the inflation outlook.
Ongoing Fed rate hikes will likely take steam out of the labor market. Strong Labor Market The pandemic fundamentally altered global supply chains, forcing many businesses to re-consider how far their supply chains stretch.
Indeed, a 2022 Deloitte survey reported that 2/3 of surveyed manufacturers intend to shift capacity to the U.S. or are considering it, and nearly 1/4 of their Asia-originating freight is expected to shift to the Americas by 2025. Post-COVID Supply Chain Shifts Congress managed to pass three major bills over the past year: the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act (CHIPS), and the Inflation Reduction Act (IRA).
Totaling at least $600 billion in new spending, these bills are expected to act as a catalyst in spurring growth within the manufacturing sector and building greater supply resiliency on domestic soil. Pro-Industrial Legislative Boost<br>
slide6. 6 Top Economic Headwinds ECONOMIC HEADWINDS Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook<br>
slide7. 7 Special Topic SPECIAL TOPIC: Recession Watch Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook Keybridge Recession Monitor
Red = recession, green = no recession, yellow = in between Recession Gauge
Number of indicators flashing red<br>
slide8. Projections for Key Economic Indicators 7 Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook<br>
slide9. After being flat in Q2, business investment rose at a 5.1% annualized pace thanks to strong equipment investment growth in Q3. Source: U.S. Bureau of Economic Analysis Investment 8 Business Investment
Real Nonresidential Fixed Investment, % Change from Prior Quarter -29.4%<br>
slide10. While several sectors are continuing to expand despite rising interest rates, growth has begun to slow for most. Investment 9 Source: 2022 Q4 Equipment Leasing & Finance U.S. Economic Outlook
For more information on how to use the Momentum Monitors, see final slide. Equipment & Software Investment
Momentum Monitor (Equipment Vertical Performance Matrix)<br>
slide11. Forecast E&S investment growth is forecasted to slow in 2023 as the Fed’s rate hikes start to slow economic growth and cool businesses investment. Investment Source: U.S. Bureau of Economic Analysis; Projections from Keybridge 10 Real Equipment & Software Investment Growth
Q/Q % change, SAAR 40.1% -28.3% -14.0%<br>
slide12. New business volume was up 5.8% year-to-date in October. Bus. Health 11 Source: ELFA MLFI-25
*Note: The MLFI-25 reports economic activity from 25 companies representing a cross section of the equipment finance sector. It does not represent the total size of the equipment finance industry. MLFI-25 New Business Volume
Billions of $<br>
slide13. Nominal new business volume growth has been solid most of 2022. However, high inflation continues to cut into real NBV. Bus. Health 11 Source: ELFA MLFI-25
*Note: The MLFI-25 reports economic activity from 25 companies representing a cross section of the equipment finance sector. It does not represent the total size of the equipment finance industry. New business volume is up 5.8% year-to-date MLFI-25 New Business Volume (NBV)
Y/Y % change<br>
slide14. Equipment finance industry confidence has followed a downward path since its peak in early 2021. It is at its lowest level since May 2020. 13 Source: ELFF MCI-EFI Bus. Health Monthly Confidence Index: Equipment Finance Industry (MCI-EFI)<br>
slide15. The Equifax Small Business Lending Index fell 10.7 points in October, though the three-month moving average was above its year-ago level. Source: Equifax Bus. Health 14 SBLI SBLI 3MMA Equifax Small Business Lending Index (SBLI)
January 2005 = 100<br>
slide16. EQUIPMENT LEASING & FINANCE FOUNDATION 15 Reports are available to download at www.store.leasefoundation.org The latest edition of the Keybridge / Foundation U.S. Economic Outlook is available here at the Foundation’s website.<br>
slide17. EQUIPMENT LEASING & FINANCE FOUNDATION 15 For more information, download the Applied Economics Handbook or research articles (2018 & 2022) analyzing the effect of inflation and rising interest rates on the equipment finance industry.<br>
slide18. Notes *U.S. Equipment & Software Investment Momentum Monitor (Slide 10)
Published monthly, the U.S. Equipment & Software Investment Momentum Monitor is a set of leading indicators for the equipment sector consisting of indices for various equipment and software investment verticals. These indices are designed to identify turning points in their respective investment cycles with a ~6-month lead time.
Each index is comprised of between 15 to 20 high-frequency indicators and is statistically optimized to signal turning points in the investment cycle without giving false readings of shifts in momentum.
The Momentum Monitor covers 12 equipment and software verticals as defined by the U.S. Department of Commerce Bureau of Economic Analysis. These verticals include aircraft, agriculture machinery, computers, construction machinery, materials handling equipment, medical equipment, mining and oilfield equipment, other industrial equipment, railroad equipment, ships and boats, software, and trucks.
“Recent Momentum" represents the degree of an indicator's recent acceleration or deceleration in the past month relative to its average movement during the previous 3 months. Ratings closer to "0" represent an indicator that is rapidly decelerating, while ratings closer to “10” represent an indicator that is rapidly accelerating.
"Historical Strength" represents the strength or weakness of an indicator in the past month relative to its typical level since 1999. Ratings closer to "0" represent an indicator that is weaker than average, while ratings closer to "10" represent an indicator that is stronger than average. 16<br>
December 2022 Prepared For:
Equipment Leasing & Finance Foundation
Prepared By:
Keybridge LLC<br>
slide2. Data: Table of Contents 2. Investment 3. Business Health 1. Overall Economy p. 3 2 p. 8 p. 11<br>
slide3. Forecast Source: U.S. Bureau of Economic Analysis, Keybridge LLC 3 The economy expanded in Q3 2022 following two consecutive quarters of decline, growing 2.9% (SAAR), largely due to robust net exports. Economy 30-Year Quarterly Average = 2.6% +0.7% Real GDP Growth
Annualized % Change from Prior Quarter 35.3% -29.9%<br>
slide4. The Q3 expansion was driven by a large increase in net exports and strong consumer spending, which offset a decline in business investment. 4 Source: U.S. Bureau of Economic Analysis, Keybridge LLC Economy HEADWINDS [-2.54] +0.83 GDP CHANGE
[+2.93] +2.93 Consumer Spending Other Investment -2.54 +1.18 Government Spending E&S Investment Tailwinds & Headwinds
Contributions to GDP growth by sector Net Exports +0.53<br>
slide5. Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook 5 Top Economic Tailwinds ECONOMIC TAILWINDS The economy added 261k jobs in November and job openings remain well above pre-pandemic levels.
However, recent signs that wage growth may be accelerating could be a concern for the inflation outlook.
Ongoing Fed rate hikes will likely take steam out of the labor market. Strong Labor Market The pandemic fundamentally altered global supply chains, forcing many businesses to re-consider how far their supply chains stretch.
Indeed, a 2022 Deloitte survey reported that 2/3 of surveyed manufacturers intend to shift capacity to the U.S. or are considering it, and nearly 1/4 of their Asia-originating freight is expected to shift to the Americas by 2025. Post-COVID Supply Chain Shifts Congress managed to pass three major bills over the past year: the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act (CHIPS), and the Inflation Reduction Act (IRA).
Totaling at least $600 billion in new spending, these bills are expected to act as a catalyst in spurring growth within the manufacturing sector and building greater supply resiliency on domestic soil. Pro-Industrial Legislative Boost<br>
slide6. 6 Top Economic Headwinds ECONOMIC HEADWINDS Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook<br>
slide7. 7 Special Topic SPECIAL TOPIC: Recession Watch Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook Keybridge Recession Monitor
Red = recession, green = no recession, yellow = in between Recession Gauge
Number of indicators flashing red<br>
slide8. Projections for Key Economic Indicators 7 Source: 2023 Annual Equipment Leasing & Finance U.S. Economic Outlook<br>
slide9. After being flat in Q2, business investment rose at a 5.1% annualized pace thanks to strong equipment investment growth in Q3. Source: U.S. Bureau of Economic Analysis Investment 8 Business Investment
Real Nonresidential Fixed Investment, % Change from Prior Quarter -29.4%<br>
slide10. While several sectors are continuing to expand despite rising interest rates, growth has begun to slow for most. Investment 9 Source: 2022 Q4 Equipment Leasing & Finance U.S. Economic Outlook
For more information on how to use the Momentum Monitors, see final slide. Equipment & Software Investment
Momentum Monitor (Equipment Vertical Performance Matrix)<br>
slide11. Forecast E&S investment growth is forecasted to slow in 2023 as the Fed’s rate hikes start to slow economic growth and cool businesses investment. Investment Source: U.S. Bureau of Economic Analysis; Projections from Keybridge 10 Real Equipment & Software Investment Growth
Q/Q % change, SAAR 40.1% -28.3% -14.0%<br>
slide12. New business volume was up 5.8% year-to-date in October. Bus. Health 11 Source: ELFA MLFI-25
*Note: The MLFI-25 reports economic activity from 25 companies representing a cross section of the equipment finance sector. It does not represent the total size of the equipment finance industry. MLFI-25 New Business Volume
Billions of $<br>
slide13. Nominal new business volume growth has been solid most of 2022. However, high inflation continues to cut into real NBV. Bus. Health 11 Source: ELFA MLFI-25
*Note: The MLFI-25 reports economic activity from 25 companies representing a cross section of the equipment finance sector. It does not represent the total size of the equipment finance industry. New business volume is up 5.8% year-to-date MLFI-25 New Business Volume (NBV)
Y/Y % change<br>
slide14. Equipment finance industry confidence has followed a downward path since its peak in early 2021. It is at its lowest level since May 2020. 13 Source: ELFF MCI-EFI Bus. Health Monthly Confidence Index: Equipment Finance Industry (MCI-EFI)<br>
slide15. The Equifax Small Business Lending Index fell 10.7 points in October, though the three-month moving average was above its year-ago level. Source: Equifax Bus. Health 14 SBLI SBLI 3MMA Equifax Small Business Lending Index (SBLI)
January 2005 = 100<br>
slide16. EQUIPMENT LEASING & FINANCE FOUNDATION 15 Reports are available to download at www.store.leasefoundation.org The latest edition of the Keybridge / Foundation U.S. Economic Outlook is available here at the Foundation’s website.<br>
slide17. EQUIPMENT LEASING & FINANCE FOUNDATION 15 For more information, download the Applied Economics Handbook or research articles (2018 & 2022) analyzing the effect of inflation and rising interest rates on the equipment finance industry.<br>
slide18. Notes *U.S. Equipment & Software Investment Momentum Monitor (Slide 10)
Published monthly, the U.S. Equipment & Software Investment Momentum Monitor is a set of leading indicators for the equipment sector consisting of indices for various equipment and software investment verticals. These indices are designed to identify turning points in their respective investment cycles with a ~6-month lead time.
Each index is comprised of between 15 to 20 high-frequency indicators and is statistically optimized to signal turning points in the investment cycle without giving false readings of shifts in momentum.
The Momentum Monitor covers 12 equipment and software verticals as defined by the U.S. Department of Commerce Bureau of Economic Analysis. These verticals include aircraft, agriculture machinery, computers, construction machinery, materials handling equipment, medical equipment, mining and oilfield equipment, other industrial equipment, railroad equipment, ships and boats, software, and trucks.
“Recent Momentum" represents the degree of an indicator's recent acceleration or deceleration in the past month relative to its average movement during the previous 3 months. Ratings closer to "0" represent an indicator that is rapidly decelerating, while ratings closer to “10” represent an indicator that is rapidly accelerating.
"Historical Strength" represents the strength or weakness of an indicator in the past month relative to its typical level since 1999. Ratings closer to "0" represent an indicator that is weaker than average, while ratings closer to "10" represent an indicator that is stronger than average. 16<br>