ARA: Feds will raise rates again; “We’re not out of the woods”

Following 2022’s vibrant equipment rental markets across the U.S. and Canada, the construction and industrial industries should prepare for limited revenue and growth this year, according to expert economists who provided an updated outlook during the 2023 ARA Show.

“There’s no joy coming out of the housing market this year,” said Scott Hazelton, director, S&P Global Market Intelligence. “We’re not out of the woods yet.”

Hazelton and John McClelland, ARA’s vice president for government affairs and chief economist, predicted a slight recession for Q1 and Q2 this year, noting the feds will again raise rates, most likely related to inflation. Canada will also feel the impact of inflation and experience a slight recession.

“Canada has had a substantial run,” Hazelton said, but noted Canada’s recession will be deeper than that of the U.S.

McClelland agreed, saying, “We have a real, serious concern” about “full expensing” being phased out for the rental industry and its impact’s with interest deductibility.

“Can Congress address the debt ceiling in a timely manner?” McClelland asked rhetorically.

While the IIJA injection will see shovel-ready projects start, its impact will not fully be felt until 2024 – and even then, the industry will only see 1.9% growth for construction and industrial rental. Peak spending related to IIJA work won’t surface until 2025, both economists noted.

Despite a somewhat gloomy outlook, 2023’s rental market should prepare for a “counter-cyclical outcome,” because of the IIJA, which also will soften any slight recession the industry will encounter.

Both Hazelton and McClelland noted one of the biggest factors impacting inflation is the lack of labor, but that it could easily be argued that tax cuts pre-Covid were massive impacts.