By: Daniel Krajewski, EVP, MAZO Capital Solutions
Happy New Year from TEAM MAZO!!
The November 2024 election cycle brought a clear message on several important issues that affect us all. One of the main points was that of our US economy and how there needs to be a focus on all segments of the economy but pointedly on the heart of the US business landscape, small business and consumers.
The small business community should get a bump in the short term from confidence that the election process was smooth, taxes could be cut, and the Trump administration is expected to be anti-regulation and pro-business. Alignment with both the Senate and House of Representatives should accelerate the ability to make timely decisions and implement change.
Several areas that need further review and clarification have to do with tariffs, the ongoing deficit issues, inflation, interest rates and the overall global economy which can be affected by continued tension in Eastern Europe and the Middle East. All are significant issues that require attention to accelerate growth and instill confidence.
Let’s look at some of the economic indicators that point to a positive outlook for 2025.
GDP Growth:
The US economy showed real GDP growth that averaged 2.80% in 2024. The target for 2025 is pegged at 2.70%. Slightly reduced but not significant enough to cause concern with strong growth in Q1 before moderating in line with a soft landing.
Inflation:
This data is a large determinate in consumer confidence. Inflation has been on a downward trend over the last 12-18 months, and this should continue. Estimates for 2025 are 2.7% compared to 2.9% in 2024 and 4.1% in 2023.
Fed Funds Target:
Throughout 2024 we saw several reductions in interest rates. While 2025 will continue to show some reductions in the Fed Funds Rate, it will not be at the same pace as 2024. The current Fed Funds rate is at 4.5% with anticipation to reduce to 4.0% in 2025. Further reductions may be muted by fears that inflation may return if the economy becomes overheated.
Non-Farm Payroll Growth:
The December employment confirmed that the labor market remains generally healthy, with 227K jobs created in November and upward revisions to the previous two months’ data. Although job growth has slowed and unemployment has risen this year, the labor market remains healthy, as does consumer demand.
Investment in Equipment and Software:
Projections are that investment will be on par with the past two years, which have averaged about 4.8%. Moderate growth is expected during the first half of the year with upside potential later in the year if inflation cools further towards 2% and the Fed responds by further lowering interest rates.
Lastly, we can look at what executives in the Equipment Finance Industry are saying about the first portion of 2025. The Equipment Lease and Finance Association’s Confidence Index for December 2024 showed the following results.
Business Conditions:
When asked to assess their business conditions over the next four months, 57.1% of the executives responding said they believe business conditions will improve over the next four months.
Capex Demand:
53.6% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months.
U.S. economy:
7.1% of the leadership evaluate the current U.S. economy as “excellent,” up from none the previous month. 89.3% evaluate the economy as “fair,”
Economic outlook:
53.6% of the survey respondents believe that U.S. economic conditions will get “better” over the next six months.
Conclusions:
The first quarter of 2025 will be both interesting and cause for concern. The interesting. Can the new administration forge a strong working relationship across all houses of government and deliver a strong economic model. The concern. Will Trump and his administration’s boldness regarding tariffs, global relationships and deficits bring back higher levels of inflation which will cause increases in borrowing rates. We look to be optimistic in our view and are focusing on growth to bring the best financing solutions to the market and our partners and customers.
