MOLINE, Ill.--(BUSINESS WIRE)--In its latest five-year forecast, the American Rental Association (ARA) expects equipment rental industry revenue to continue to grow consistently in the United States over the next five years, resulting in total revenue of $59.6 billion in 2021.
According to the ARA Rental Market Monitor™ five-year forecast updated in February, total rental revenue in the U.S. is expected to grow by 4.5 percent in 2018 to reach $51.5 billion, 5.6 percent in 2019, 5 percent in 2020 and 4.4 percent in 2021. The February forecast is identical to the previous forecast released in November 2017 for 2018, with slight upticks in the expected revenue growth rates for 2019 through 2021.
In Canada, equipment rental revenue also is expected to show consistent growth, reaching $5.35 billion in 2018 with growth rates of 4.1 percent in 2019, 5 percent in 2020 and 4.7 percent in 2021 to total $6.125 billion, which is nearly identical to the November 2017 forecast.
Some of the positive expectations in the U.S. are a result of the Tax Cuts and Jobs Act taking effect in 2018.
“Our rental revenue forecast has increased somewhat in the out-years of the forecast. One significant reason for this increase is the long-term effects of the recently-passed tax cuts for both businesses and individuals,” said John McClelland, ARA’s vice president for government affairs and chief economist.
“Tax cuts generally provide fiscal stimulus to the economy, which can lead to more investment by businesses and higher employment. This can push wages higher, pushing up consumer spending on goods and services as well as leisure activities,” McClelland said.
“All of these trends will help every segment of rental. The greatest concern we have is that of rising inflation that could result from an extremely tight labor market and rising prices for goods and services that are now part of the reflation of the global economy,” he said.
“If inflation begins to move quickly to the upside, the Federal Reserve would be forced to tighten monetary policy with increases in interest rates beyond the 3.5 percent in our forecast. Currently, we believe this type of scenario would take some time to unfold, if it does at all, which is why we continue to expect increases in rental revenue throughout the forecast,” McClelland said.
According to the ARA Rental Market Monitor, which features data and analysis from IHS Markit, a leading business information provider, construction/industrial equipment rental revenue in the U.S. is expected to show a 4.3 percent increase in 2018, 4.5 percent in 2019, 4 percent in 2020 and 3.4 percent in 2021 to reach $40.5 billion.
General tool is expected to post increases of 4.7 percent in 2018, 5.9 percent in 2019, 7.8 percent in 2020 and 6.7 percent in 2021 to total $15.1 billion, while party and event is forecasted to show a 6.5 percent increase in 2018, 6.1 percent in 2019, 6 percent in 2020 and 5.6 percent in 2021 to reach $4 billion.
“The tax cuts were widely anticipated with the election of President Trump and the structure of the cuts was largely what businesses had expected,” said Scott Hazelton, managing director, IHS Markit.
“As such, economic responses to the cuts were already baked into the 2017 economic performance. IHS Markit only anticipates an additional 10 to 30 basis points of GDP [gross domestic product] growth compared to its pre-tax passage forecast for 2018-2020,” Hazelton said.
“Even without the tax cuts, we anticipated rising interest rates would further slow construction market growth, and the potential for stronger inflation creates the risk of additional monetary tightening. The net effect is an equipment rental outlook close to what we had anticipated with modest enhancements to the upside,” he said.
Investment in rental equipment by equipment rental companies is projected to increase by 3.1 percent in 2018, 8.8 percent in 2019, 3.2 percent in 2020 and 0.4 percent in 2021, surpassing $15 billion that year.
The share of revenue used for investment remains fairly steady at 25.9 percent in 2018, 26.6 percent in 2019, 26.2 percent in 2020 and 25.2 percent in 2021.
“A business and investment friendly climate suggests that the recovery can continue for some time yet and even accelerate modestly,” Hazelton said.
“In 2019, we also expect a bump up in energy prices and an expectation of increased demand for equipment in the energy patch. That results in the expectation of a larger bump in investment in 2019, which also reflects the older fleet that will then be in use combined with expected future demand,” he said.
“Once you get an 8 percent growth increase, you are at a new plateau,” Hazelton said. “Absent another stimulus, you’re not going to get another big bump in investment, so we expect that the investment increase will settle down again in 2020 and 2021.”
ARA also released its latest ARA Rental Penetration Index, which shows penetration of construction equipment into the U.S. rental market at 53 percent in 2017, up 20 basis points versus last year after modest declines in 2015 and 2016.
The index calculates the percentage of construction equipment in use in the U.S. that is owned by rental companies.
About ARA: (www.ARArental.org) The American Rental Association, Moline, Ill., is an international trade association for owners of equipment rental businesses and the manufacturers and suppliers of construction/industrial, general tool and party/event rental equipment. ARA members, which include more than 10,000 rental businesses and more than 1,000 manufacturers and suppliers, are located in every U.S. state, every Canadian province and more than 30 countries worldwide. Founded in 1955, ARA is the source for information, advocacy, risk management, business development tools, education and training, networking and marketplace opportunities for the equipment rental industry throughout the world.
About IHS Markit (www.ihsmarkit.com)
IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.
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