The business cycle is expected to return to normal in 2024, with improved macroeconomic conditions and equipment asking values, according to three senior equipment executives.
The pandemic created an unusual economic period globally, but with inflation and interest rates stabilizing in the United States and the equipment finance industry adapting to market conditions, the typical business cycle should return, Chuck McKay, senior vice president of corporate development at Mitsubishi HC Capital America, told Equipment Finance News.
“We had an unusual economic period leading up to the pandemic, then of course the pandemic was hugely unusual, and both of those were unusual relative to what we experienced prior to the [Great Recession],” he said. “We’re going to be back to what you would consider a typical business cycle.”
While he expects a return to normal in 2024, there’s no guarantee of a soft landing and no way to tell until after it happens, McKay said.
“A soft landing is controlling inflation without a recession, and that’s what the Fed has always tried to do in its tightening cycles,” he said. “We’ll know in a few years if they got it right this time.”
One inflationary gauge, the Consumer Price Index (CPI), rose 0.1% month over month in November and is up 3.1% year over year, according to the U.S. Bureau of Labor Statistics report released today. Core CPI, which excludes food and energy, increased 0.3% MoM and 4% YoY last month.
Equipment market normalizing
In the equipment market, retail, or asking, value should also decline early in 2024 and could normalize by springtime, Jim Ryan, equipment lease and finance manager at Sandhills Global, told EFN.
“As we get through this initial month or two wave, you’re going to start seeing some of those numbers creeping down as far as what dealers are asking for equipment,” Ryan said. “You’ll start to see it normalized by the time we get to spring of 2024.”
Some in the equipment industry are also waiting to see how macroeconomic conditions and supply chain concerns change in 2024, Ryan said.
Inventory is expected to stabilize next year, Bryan Knutson, president and chief operating officer of Titan Machinery, said during the company’s Nov. 30 earnings call.
“Given the higher seasonality volumes, [the supply chain] created a pinch point in terms of the amount of equipment we could get delivered and prevented us from reaching the full potential for the quarter,” Knutson said. “As we look into next year and get past the first half of the year, we largely see a lot of these issues being behind us and getting us back towards normalized conditions.”
The old new normal
A return to a more typical business cycle could also see the return to a macroeconomic environment that the U.S. has not experienced since before the Great Recession, Mitsubishi’s McKay said.
“We had the longest expansion in history post–financial crisis and that may not be the case going forward,” he said. “There’s going to be more cyclicality and volatility in purchase patterns, and that just takes things back to the way they were 20 years ago as opposed to five years ago.”
If economic conditions return to the pre-financial crisis normal, businesses will need to return to financing and interest rate management skills they haven’t needed since then, McKay said.
“One of the overriding conditions here is that the economy, companies, consumers, and buyers and sellers of equipment got used to low, stable, near-zero base rates, and therefore, low financing costs for the entire duration post-financial crisis,” he said. “If you look before the financial crisis, that wasn’t the case, so businesses had to manage increasing and decreasing interest rates. That capability has been lost.”
