Equipment investment poised for continued growth

The heavy-equipment investment market is expected to grow in the second half of 2024 as inflationary pressures ease, with trucking and agriculture sectors poised to reap the benefits. 

The Equipment Leasing and Finance Foundation projects equipment and software investment to increase 2.9% and 3.7% in the third and fourth quarters, respectively, according to its third-quarter update to the 2024 economic outlook. ELFF’s projections were mainly based on data from Q1, with much of Q2 data not yet available.  

Heavy-equipment investment growth in Q3 would follow a relatively strong start to the year, driven by broader economic improvements, Jeff Jensen, vice president of Keybridge, ELFF’s research partner for economic reports and resources, told Equipment Finance News.  

“A lot of the improvement in market conditions can be traced back to easing inflation, which acted as a significant headwind to real investment growth in 2022 and 2023,” Jensen said. “It’s also certainly the case that the broader economy has performed better over the last six quarters than most economists expected, largely due to the robust labor market and solid consumer spending growth.” 

The bump in investment has come despite higher interest rates, highlighting businesses’ improved confidence, he said. 

Trucking, agriculture see strong investment activity  

Truck investment rose 6% year over year in Q1 and was up 7.7% from the previous quarter. ELFF’s investment momentum monitor — which includes indices for 12 sectors and is based on recent performance and historical strength — identifies trucks as an expanding market, with momentum readings up nearly 20% since December. Truck investment is expected to continue growing over the next six months, according to the monitor.  

In addition, agriculture investment was identified as an expanding market and is projected to remain positive over the next two quarters. Investment in agriculture equipment increased 11% YoY and 47% quarter over quarter in Q1.  

Lower rates to yield modest growth 

Lending standards tightened further in Q1, with large and medium banks reporting a 27% drop in loan demand, while smaller institutions saw a 23% decrease. Banks reported reduced plant and equipment investment along with lower inventory financing as the most common reasons for decreased loan demand.  

The Federal Reserve is expected by many to cut interest rates at least once this year as inflation eases, which could alleviate the tight lending environment that has hindered the equipment finance industry since last year. Lower rates may heighten investment activity, although not by much, Jensen said. 

“There may be a modestly positive impact on equipment investment growth in Q4, as a 25 to 50-basis point drop in rates is not immaterial and may make some projects on the margins work that wouldn’t have otherwise,” he said. “That’s part of the reason our equipment and software investment forecast for Q4 is a bit higher than Q3.” 

Broader economic conditions will be the main driver of investment activity over the next two quarters, he said.