ELFF: U.S. Economic Outlook Forecasts 4.7% Expansion in Equipment & Software Investment

After a strong performance in 2024, the U.S. economy will continue to benefit from a solid labor market, rising household wealth and resilient consumer spending next year, according to the 2025 Equipment Leasing & Finance Foundation (ELFF) U.S. Economic Outlook. Real equipment and software investment growth is projected to be 4.7% in 2025, roughly on par with growth in 2024 with stronger investment activity expected in the latter half of the year. The report, which was prepared by Keybridge and released by the ELFF, also forecasts real GDP growth of 2.7% this year, similar to the estimated 2.8% growth observed in 2024.

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“The economy blew past expectations in 2024 as strong consumer spending and business investment pushed growth above trends experienced prior to the pandemic. Data on new loan volume from ELFA’s CapEx Finance Index and executive sentiment in the foundation’s Monthly Confidence Index suggest that momentum carried through to the fourth quarter, and lines the economy up for a strong 2025,” Leigh Lytle, president of the foundation, and president and CEO of the Equipment Leasing and Finance Association (ELFA), said. “That said, the potential for a trade war and persistent inflation could cause the Federal Reserve to slow the pace of rate decreases, which would weigh on the U.S. economy. Time will tell how all of these things shake out, but if we’ve learned one thing from 2024, it’s to never bet against the strength of American consumers or the resiliency of American business.”

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Highlights from the 2025 Outlook include:

Equipment and software investment expanded 7.5% (annualized) in Q3/24, the second consecutive quarter of solid growth. Aircraft investment, which has more than doubled since Q1/24, was again primarily responsible for the strong performance. Growth in computers and communication equipment has also been strong, while construction machinery investment contracted again.

The U.S. economy continues to outperform its international peers. Despite the unprecedented downturn in early 2020, the U.S. economy is roughly 11% larger in inflation-adjusted terms than it was at the end of 2019, faring far better than other major economies. Businesses are more optimistic about their prospects in 2025, in part due to the prospects of lower taxes and less regulation under the incoming Trump administration and a Republican-controlled Congress. However, uncertainty remains regarding potential tariffs, tax cuts for manufacturers, and changes to clean energy funding.

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Looking to Fed policy, the December employment report confirmed that the labor market remains generally healthy, with 227,000 jobs created in November and upward revisions to the previous two months’ data. These data align with Fed Chair Jay Powell’s description of recent economic performance as “remarkably good” and “not sending any signals [for] the need to be in a hurry to lower rates.” Nonetheless, markets overwhelmingly predict another rate cut at the Fed’s Dec. 18 meeting. In 2025, FOMC members will closely monitor upside risks to inflation and downside risks to employment.

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. This month, two verticals are expanding, two are peaking, four are recovering and four are weakening. Over the next three to six months, the foundation expects the following trends to materialize on a year-over-year basis:

• Agriculture machinery investment growth is likely to weaken further.
• Construction machinery investment growth is expected to remain weak.
• Materials handling equipment investment growth will remain positive and could strengthen.
• All other industrial equipment investment growth will remain weak.
• Medical equipment investment growth should stay positive.
• Mining and oilfield machinery investment growth should improve.
• Aircraft investment growth may have peaked and is likely to decline.
• Ships and boats investment growth is expected to remain in contractionary territory.
• Railroad equipment investment growth may weaken but should remain positive.
• Trucks investment growth will be weak or negative.
• Computers investment growth should remain strong.
• Software investment growth will remain positive, but this month’s sizable momentum decline is worth monitoring in the months ahead.

Download the full report online.