Equipment demand is falling

Investment in equipment and software is projected to contract severely in 2020 by as much as 13.5% due to the substantial uncertainty stemming from both COVID-19 and the impact of social distancing measures on the US economy.

Similarly, the US economy is expected to have its worst year in decades, with annual shrinking by between 5 and 9.4%, according to the Q2 update to the 2020 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation (ELFF).

While the economy will continue to suffer until the public health crisis is resolved, conditions are expected to improve in the third and fourth quarters, which should produce strong annualised growth rates after a large contraction during the first half of the year. Nonetheless, the economy will be smaller at the end of 2020 than it was at the start.

Scott Thacker, foundation chair and chief executive officer of Ivory Consulting Corporation, says the survey results clearly show the COVID-19 impact on the economy. "The report portrays in detail how 2020 is likely to be one of the most challenging years in history for the US economy and for our industry. Going into 2020, equipment and software investment was already at its weakest growth level since 2016, and now is expected to plunge to nearly unprecedented low levels of growth.

"There are a few equipment verticals, however, such as medical devices and computers, that are expected to be more resilient," he adds.

According to the report, capital investment contracted for three consecutive quarters in 2019 and will suffer due to the pandemic. The oil sector is likely to be particularly exposed due to the combination of cratering global demand and a price war.

The manufacturing sector also faces a sharp downturn in 2020, although certain industries critical to public health may see a boost in demand, the survey found.

Most equipment verticals will face a difficult investment environment in 2020, although select industries may experience a boost. The survey indicates that over the next three to six months, materials handling equipment investment is likely to remain negative.

ELFF states that while some Main Street businesses will continue to operate as the country copes with the pandemic, many won't - and most will suffer. The success of federal efforts to help small businesses stay afloat and avoid widespread layoffs and business failures is critical.

"The US economy is in recession and will undergo a historically deep contraction in the second quarter. However, a timely and well-coordinated policy response of sufficient scale could limit the recession's long-term effects," analysts add.