ELFF: Equipment & Software Investment Projected to Expand 6.3% in 2025

July 16, 2025, 07:15 AM

Filed Under: Equipment Leasing & Finance Foundation

The Equipment Leasing & Finance Foundation released its Q3 update of the 2025 Equipment Leasing & Finance U.S. Economic Outlook, forecasting a mechanical rebound in Q2 growth driven by stronger net exports before slowing over the remainder of the year due to pressure of higher tariffs and an increasingly cautious consumer behavior.

Despite reasonably healthy topline employment, wage growth and several other hard data indicators, real U.S. GDP contracted 0.5% in Q1 2025. This dip was primarily due to weaker consumer spending and a tariff-fueled reduction in net exports. However, even as GDP shrank in Q1, equipment and software investment growth jumped nearly 22%, fueled by businesses looking to front-load purchases to avoid new tariffs. As a result, the Q3 update of the 2025 Equipment Leasing & Finance U.S. Economic Outlook has revised its 2025 equipment and software investment forecast to 6.3% (up from 2.8%) and its U.S. GDP forecast to 1.3% (up from 1.2%).

“Equipment and software investment soared in Q1 as businesses accelerated spending to get ahead of tariff-induced price increases. Looking ahead, the picture is murkier, however: investment likely moderated this spring, and the slowdown in consumer spending is an ongoing concern,” said Leigh Lytle, President of the Foundation, and President & CEO of the Equipment Leasing and Finance Association. “Still, capex demand should get a boost if the Fed cuts rates later this year, and key provisions in the One Big Beautiful Bill Act, including 100% expensing and EBITDA-based interest deductibility, will benefit the industry in both the short and long term.”

Highlights from the 2025 Outlook include:

U.S. economy: Overall, the U.S. economy is on uneven footing. While business-friendly tax and regulatory policy are tailwinds, consumer spending has slowed and job growth has been driven almost exclusively by healthcare, leisure and hospitality, and state and local government. Meanwhile, the Fed has been hesitant to cut rates due to worries of tariff-induced inflation later this year. With uncertainty elevated and aggregate demand softening, only modest economic growth is expected in 2025.

Business sentiment: Executives at large firms expect slower growth in hiring, capex, and sales, but small business owners are less pessimistic. Both the NFIB Small Business Optimism Index and the Foundation’s Monthly Confidence Index have rebounded from spring lows and returned to their historical averages. Additionally, ELFA’s CapEx Finance Index improved in May after a slow start to the year, and new business volume is now back on its two-year growth trendline.

Equipment and software investment: Equipment and software investment started off the year with a bang, growing by nearly 22% (annualized). However, the robust expansion, which was heavily concentrated in the technology and medical sectors, was fueled by efforts to front-load purchases to avoid new tariffs. Investment growth likely slowed markedly in Q2, but if the Fed cuts rates in Q3 and Q4 as anticipated, it could provide a modest boost to investment later this year.

Equipment finance industry: The equipment finance industry should benefit from the recent passage of the One Big Beautiful Bill Act in multiple ways, including a permanent return to 100% expensing and EBITDA-based interest deduction, as well as a permanent 20% deduction for qualified business income for pass-through businesses. However, the accelerated phaseout for clean energy tax incentives will likely reduce investment in some verticals.

Also in the report are this quarter’s special topics, which include an extended discussion on tariffs, the expected impact on the tax law on the economy/industry and an update on small businesses.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the Economic Outlook, tracks seven equipment and software investment verticals. In addition, the Momentum Monitor Sector Matrix provides a customized data visualization of current values of each of the seven verticals based on recent momentum and historical strength. This month, one vertical is strong and accelerating, five are weak but accelerating and one is weak and decelerating. Over the next six months the Foundation expects the following trends to materialize on a year-over-year basis: