With US rate cuts coming, is the North American equipment rental industry softening or solidifying?

The answer is a little bit of a ‘mixed bag’ for both near-term and long-term projections.

US revenue projections down, but future rate cut driving optimism

In the US, the ARA sees indications that the rental industry’s 2024 growth projections are softening. The association, which represents equipment rental segments on the continent, said projections for 2024 show an 8.9% revenue rise to US$78.7 billion for construction and tool rental.

“This is a decrease from last quarter’s projection of a 9.7% increase totalling $79.2 billion,” said the ARA.

Broken down by segment, construction and industrial rental revenue (CIE) is projected to bring in $62.3 billion and general tool rental revenue projected at $16.4 billion, said the organisation.

Kurt Barney, president, Vandalia Rental in Ohio, US, said, “Largely what we’re seeing is softening growth as well. We’re seeing pricing elasticity.

“It’s no longer, ‘Do you have it?’” he continued. “We’re back to doing business like 2019 when we have to really communicate the value proposition of working with us.”

Barney noted that the US market should receive some relief in September after the US Federal Reserve announces, what many expect, will be the first reduction of bank borrowing interest rates since March 2020.

On 23 August, Federal Reserve Chairman Jerome Powell all but confirmed the US fiduciary plans to cut rates at its meeting next month.

Excavators lined up in a rental yard. (Image: Adobe Stock)

“We’re balancing rate pressures, supply chain and mix of the fleet in a softening environment, especially on the earthmoving side,” explained Barney. “As interest rates begin to decline, I think it will take some of the projects off the sidelines.”

Still, there’s been promises of rate cuts for more than four years in the US, and Scott Hazelton, managing director at data analytics firm S&P Global, recommended a cautious approach in finishing out 2024.

“S&P Global believes that interest rates will not come down until December,” he said mid-month, before Powell’s overtures on 23 August. “Powell wants to see inflation staying under control before any moves are made.”

Canadian rental industry slowing but companies growing

In Canada, revenue is only slightly down as a growth percentage, but expectations are that the region will beat the projected dollar amount for the year.

“The updated forecast for total Canadian equipment rental revenue shows a 6.6% growth totalling $5.75 billion, compared to last quarter’s projection of 7.2% growth, totalling $5.79 billion,” said the ARA. “Canadian general tool revenue this year is projected to be 6.8%, $1.08 billion and Canadian CIE revenue in 2024 is projected to be $4.67 billion.”

The 2025 projection for Canada’s combined rental revenue is $6.14 billion, or 6.7% year-on-year growth; $1.14 billion in general tool rental revenue and $5 billion in CIE rental revenue.

“I wouldn’t characterise Canada’s economy as robust, but CIE is one of the strongest investments in particular,” said Hazelton. “We do expect the economy to get stronger as a whole by 2027.”

ARA still positive on 2025 North American rental outlook

A line of rental dozers. (Image: Adobe Stock)

“The forecast for construction and industrial has not changed much since last quarter, perhaps a few tenths of basis points, but there has been more change to general tool,” added Hazelton. “The market is still doing well but slowing. Next year’s GDP growth is lower than trend at 1.6% growth; the trend is around 2.1%.”

Hazelton added there’s still uncertainty but added the “overall view of rental is positive moving forward, but there is uncertainty out there.”

Barney said for the US market, even a modest rate reduction this year and into next could have a huge impact on rental.

“[A] quarter- half-point [rate cuts] have a huge impact on those projects,” he said, noting friendly borrowing terms would benefit growing firms. “The rental model and proposition has never been stronger.

“It’s a good place to be.”