Equipment Leasing & Finance Industry Snapshot

1. July 2019 Equipment Leasing & Finance Industry Snapshot

2. Data: Table of Contents 1. Overall Economy p. 3 2. Investment p. 8 3. Business Health p. 11

3. GDP growth improved to 3.1% in the first quarter, despite weakening economic fundamentals. Economy +3.1% Real GDP Growth Annualized Percent Change from Previous Quarter 30-Year Quarterly Average = 2.5% Source: U.S. Bureau of Economic Analysis, Keybridge LLC

4. Both consumer spending and investment disappointed in Q1. Growth was driven by net exports, inventories, and government spending. Economy Tailwinds & Headwinds Contributions to GDP Growth by Sector Source: U.S. Bureau of Economic Analysis, Keybridge LLC

5. Top Economic Headwinds & Tailwinds ECONOMIC TAILWINDS • U.S. crude oil production is at an all-time high, surpassing 12 million barrels per day to make the U.S. the world’s leading oil producer. • Despite price volatility, the break-even price for U.S. oil production continues to fall for new and existing pumps, encouraging new investment in the sector. Thriving Oil Sector • Fed officials have laid the groundwork for cutting rates in recent weeks, and the “market-implied” probability of a July rate cut is 100%, • A cut would marginally ease financial stress on consumers and businesses but is unlikely to trigger a wholesale improvement in investment or spending. Dovish Federal Reserve ECONOMIC HEADWINDS • Tensions among top U.S. trade partners remain high, despite recent progress (potentially) in China. • These disputes continue to dampen business confidence and are exacerbating an already uncertain economic climate. Trade Tensions • Waning global demand, a strong dollar, and escalating trade disputes have contributed to a softening manufacturing sector. • Several metrics of manufacturing performance suggest industrial output will remain muted or decline further in the second half of the year. Worsening U.S. Manufacturing Performance Source: Q3 2019 Equipment Leasing & Finance U.S. Economic Outlook

6. Additional Factors to Watch Potential for Consumer Slowdown? • Consumer spending comprises two-thirds of the economy, so a slowdown would have an outsize impact on U.S. growth. • Positive news: unemployment remains near a 50-year low, real wage growth is relatively strong, and spending data have improved. • Negative news: consumer confidence plunged in June, real disposable income is sluggish, and consumer financial stress is building. 3 China Stimulus Success? • China’s economy is expected to grow at its slowest rate in 25 years due to a slowdown in manufacturing and investment compounded by heating trade tensions with the United States. • In response, Beijing escalated its stimulus efforts via new bank loans and bond issuances to fund public works projects. • The success of China’s stimulus efforts is critical to the world economy. 1 • Measures of large business confidence are steadily declining (e.g., Business Roundtable CEO Economic Outlook Index, Deloitte Global CFO Signals survey). • On the other hand, measures of small business confidence (e.g., NFIB Small Business Optimism Index, Wells Fargo/Gallup Small Business Index, PayNet Small Business Lending Index) remain near all-time highs. • Which set of indicators is providing a truer signal of the core economy? Diverging Small and Big Business Outlooks? 2 Source: Q3 2019 Equipment Leasing & Finance U.S. Economic Outlook

7. Projections for Key Economic Indicators Source: Q3 2019 Equipment Leasing & Finance U.S. Economic Outlook

8. Growth in business investment slowed in Q1 to 4.4% (annualized), as the stimulative effects of the tax law continue to wane. Investment Business Investment Real Nonresidential Fixed Investment, Percent Change from Previous Quarter (SAAR) 4.4% Source: Macrobond Financial

9. While investment growth in most equipment verticals appear to be fading, some show potential promise, particularly software. Investment Equipment & Software Investment Momentum Monitor (Equipment Vertical Performance Matrix) Source: Q3 2019 Equipment Leasing & Finance U.S. Economic Outlook For more information on how to use the Momentum Monitors, see final slide.

10. Equipment and software investment is projected to expand by a modest 3.9% in 2019. Investment Real Equipment & Software Investment Growth Q/Q Percent Change, SAAR Forecasts Source: Macrobond Financial; Projections from Keybridge

11. New business volume growth had a slow start in the beginning of the year but improved significantly in the 2nd quarter. Bus. Health MLFI-25 New Business Volume Billion Dollars Through May*, investment is down 0.3% relative to year-ago levels *2019 data through May – projected through end of year using a simple year-to-date extrapolation. Source: ELFA MLFI-25

12. In May, new business volume grew at its fastest pace since February 2018 after significant Y/Y declines in the first quarter. Bus. Health +18% MLFI-25 New Business Volume Y/Y Percent Change Source: ELFA MLFI-25

13. However, the Monthly Confidence Index dropped 6.4 points to its lowest level since July 2016, suggesting new business volume may remain weak. Bus. Health Monthly Confidence Index: Equipment Finance Industry (MCI-EFI) 52.8 Source: Macrobond

14. The PayNet Small Business Lending Index eased slightly in May but remains near an all-time high after jumping nearly 18 points in April. Bus. Health PayNet Small Business Lending Index (SBLI) January 2005 = 100 157.2 Source: PayNet

15. EQUIPMENT LEASING & FINANCE FOUNDATION For more information on how you can use this information in your business, download the recently-updated Applied Economics Handbook. Reports are available to download at www.store.leasefoundation.org

16. Notes • *U.S. Equipment & Software Investment Momentum Monitor (Slide 9) • Published monthly, the U.S. Equipment & Software Investment Momentum Monitor is a set of leading indicators for the equipment sector consisting of indices for various equipment and software investment verticals.  These indices are designed to identify turning points in their respective investment cycles with a 3–6 month lead time. • Each index is comprised of between 15 to 20 high-frequency indicators and is statistically optimized to signal turning points in the investment cycle without giving false readings of shifts in momentum. • The Momentum Monitor covers 12 equipment and software verticals as defined by the U.S. Department of Commerce Bureau of Economic Analysis. These verticals include aircraft, agriculture machinery, computers, construction machinery, materials handling equipment, medical equipment, mining and oilfield equipment, other industrial equipment, railroad equipment, ships and boats, software, and trucks. • “Recent Momentum" represents the degree of an indicator's recent acceleration or deceleration in the past month relative to its average movement during the previous 3 months. Ratings closer to "0" represent an indicator that is rapidly decelerating, while ratings closer to “10” represent an indicator that is rapidly accelerating. • "Historical Strength" represents the strength or weakness of an indicator in the past month relative to its typical level since 1999. Ratings closer to "0" represent an indicator that is weaker than average, while ratings closer to "10" represent an indicator that is stronger than average.