Equipment finance executives can look forward to a mixed economic outlook headed into 2025 with predicted economic growth and improved post-pandemic supply chains.
With excess inventories of used equipment still plaguing many dealers, they — along with lenders and OEMs — need to be on watch as some inventory carries over into the new year, Jim Ryan, equipment lease and finance manager at Sandhills Global, told Equipment Finance News.
“Just because the calendar flips doesn’t mean the problems are going to go away,” Ryan said.
“We’ll have to continue to be aggressive and be ahead of the curve a little bit here, and I think they’ll be better for everybody,” he said.
Equipment and software investment is estimated to grow 4.7% year over year, down 10 basis points (bps) compared with 2024 estimated growth, according to the Equipment Leasing and Finance Foundation’s (ELFF) 2025 Market Outlook report, released Dec. 18. ELFF forecasts growth to accelerate into the second half of the year, peaking at 7.8% in the fourth quarter of next year.
Economic growth despite inflationary concerns
The underlying drivers of global economic growth are projected to change going into 2025 as the global economy should continue growing, which is part of the reason equipment and software investment estimates are nearly flat for 2025, Cedric Chehab, chief economist at economic research firm BMI, a subsidiary of Fitch Ratings, said during a Dec. 10 webinar.
“We forecast that the global economy will grow by about 2.5% this year and by about 2.6% next year, so a very similar growth rate, and that’s mostly going to be led by emerging markets,” he said. “Part of this growth stability is really driven by still-expansionary fiscal policy and easier monetary policy. But, of course, tariffs from the U.S. pose downside risks to growth and upside risks to inflation and if you look underneath the hood, some economies will accelerate, while others will slow.”
If enacted, tariffs would also pose a risk to inflation next year and could limit economic growth, Sarah House, managing director and senior economist at Wells Fargo, said last month.
“When you layer on the prospect of tariffs, we do think that you’re likely to see at least a modest pickup in inflation the back half of next year,” she said.
Farmers face mixed market
Farmers are heading into 2025 with increased optimism, despite concerns regarding tariffs and low 2024 net farm income, Michael Langemeier, associate director at Purdue University’s Center for Commercial Agriculture, told EFN. Net farm income for 2024 is estimated at $140.7 billion, down 4.1% from 2023 and 22.6% from the 2022 peak, according to the United States Department of Agriculture.
Other challenges facing farmers could affect farm equipment dealers, Bryan Knutson, chief executive of farm and construction equipment dealer Titan Machinery, said during the company’s Nov. 26 earnings call.
“In 2024, they’ve had some [prior-year profits] to fall back on as, again, we had pretty good yields. So we’ll also be watching yields in 2025, but their cash reserves are depleting a little bit,” he said. “At the same time, they are getting some relief in input costs, some relief in interest costs. They did have a little bit better yields than expected and the fleet is getting a little bit more aged as we go here, so, a lot of factors we’ll be watching in 2025.”
Moving commodities
A lack of movement in the commodities markets during 2024 should help inflation in both the farm economy and overall economy headed in 2025, Wells Fargo’s House said.
“We’ve really seen commodity prices move more or less sideways over the past year, so we’re not getting this big downdraft in inflation coming from a correction in those,” she said. “We’ve also seen a lot of the benefits of the unkinking of the supply chain scenarios that we saw back at the at the height of the pandemic, so it looks like we were already set to see less goods deflation next year.”
The Global Price Index of All Commodities landed at 163.9 for the third quarter of 2024, up 0.8% YoY, according to the Federal Reserve Bank of St. Louis.
Construction market rebound
Construction spending forecasts indicate an increase of 3.8% in 2025 to more than $2.1 trillion, according to a Dec. 12 report by ELFF, citing the Associated Builders and Contractors. Residential, nonresidential and nonbuilding construction spending were forecast to increase headed into 2024 and show strength headed into 2025, according to engineering and construction consultancy firm FMI’s 2024 North American Engineering and Construction Outlook: Fourth Quarter report.
Commercial and lodging construction forecast a decrease of 8% YoY in 2025 and multifamily construction to drop 16% YoY, according to the FMI report. Meanwhile, almost every other construction segment forecasts growth through 2025.
With multifamily construction forecasted to decline in 2025, other residential construction segments should benefit, according to the report. Single-family construction forecasts up 5% YoY for 2024 and 2025 and home-improvement construction should be up 8% in 2024 and 4% in 2025, according to the report.
Because of improvements in some of the residential construction sectors, dealers also could benefit, Lori Bunger, vice president of used-equipment sales at San Antonio-based Holt Cat, told EFN.
“All those residential properties need a mix of equipment,” Bunger said. “You need utility, aerial and dirt moving. It all goes hand in hand, honestly” she said.
It’s the customer’s preference,” Bunger said, as far as renting or buying used or new equipment.
As a result, the construction market for dealers should remain stable, Titan Machinery’s Knutson said.
“Our revenue outlook for our construction segment is stable versus the prior year and is supported by equipment availability and new product introductions from our suppliers.”
— Additional reporting by Quinn Donoghue
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