2021 Economic Outlook Now Projects 6.1% GDP Growth, 13.3% Rise in Capital Investments

Q3 update forecasts annual U.S. GDP growth to reach 6.1% in 2021, with annual investment in construction and other equipment and software to grow 13.3%.

Equipment Leasing & Finance Foundation
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As businesses across the country continue to invest during the post-pandemic recovery, annual U.S. GDP growth is forecast to reach 6.1% in 2021, with annual investment growth in equipment - including construction equipment - and software projected at 13.3%, based on the Q3 update to the 2021 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation.

“The Q3 update indicates that America is now opening for business quickly,” noted Scott Thacker, foundation chair and CEO, Ivory Consulting Corporation. “The evidence illustrated in the Outlook points to a booming economy for the second half of the year as long as the pandemic remains in check, and despite several potential headwinds which must be monitored carefully.

“In the shorter term, strong growth for both the economy and the equipment finance industry are expected to be realized this summer,” he added.

Highlights from the Q3 update to the 2021 Outlook include:

  • Equipment and software investment benefited from an 18% surge in Q1, and is well above its pre-pandemic level.
  • The U.S. economy expanded at a robust 6.4% (revised) annualized rate in Q1 2021, an acceleration from Q4 2020. Q1 GDP was just 0.9% below its level at the end of 2019, indicating that the economy exceeded its pre-pandemic level in Q2.
  • The U.S. manufacturing sector is still facing record levels of demand, even as the pandemic hamstrings key manufacturing centers around the world. However, industrial output in the U.S. has been constrained by acute shortages of key inputs and elevated prices.
  • Main Street has emerged from the pandemic having suffered less damage than many expected, in part due to historic federal relief efforts. Consumers are spending again, capacity limits and distancing requirements have largely been lifted, and the outlook is as bright as it has been since the pandemic began.
  • Federal Reserve officials have, for the most part, reached consensus agreement that inflation pressures will prove to be transitory. However, given the speed and magnitude of the economic rebound, the Fed has hedged a bit and signaled that rate hikes could begin in 2023.

While the outlook is mostly positive, notable headwinds remain, including two — supply chain issues and services exports — that stem from the rest of the world’s continued struggles with COVID-19 and comparatively slower vaccination push. In addition, the risk of sustained high inflation and the expiration of federal support measures are key factors to watch this summer and fall.

Equipment and Software Investment Momentum

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.

Nine verticals are showing signs of accelerating investment after the pandemic-fueled collapse, and three other verticals are showing signs of peaking, although investment growth should remain healthy in the near term. Of the heavy equipment sectors monitored, over the next three to six months, year over year:

  • Construction machinery investment growth should continue to strengthen.
  • Materials handling equipment investment growth will remain robust.
  • Agriculture machinery investment growth is likely to decelerate.
  • All other industrial equipment investment growth should continue to improve.
  • Mining and oilfield machinery investment growth should accelerate, though Y/Y growth rates may stay in negative territory.
  • Trucks investment growth could strengthen.

In addition, technology investment is expected to accelerate. Investment in computers is projected to remain strong and investment in software is expected to remain robust and may even accelerate.