The optimism felt by many just six months ago has been replaced by reignited angst over inflation, a potential recession, and overall uncertainty regarding the economy. In the agriculture and construction industries specifically, concerns over the potential impact of tariffs are growing, and forecasts are being revised downward.
“We’re going from a world that has been underpinned by free trade and multilateral economic cooperation, to a new paradigm where protectionism is on the rise, and where bilateral economic integration will be the modus operandi,” said Al Melhim, AEM’s Senior Director of Business Intelligence.
Melhim was a featured presenter during AEM’s “Business Intelligence Q2 Equipment Market Outlook” webinar earlier this month. Melhim, along with other experts, shared insights into how the ag and construction industries have been faring, and what the road ahead is beginning to look like.
What follows are the highlights:
Agriculture
Low-horsepower tractor shipments in the U.S. have weakened thus far in 2025. As of March, shipments were 15% lower than one year ago, and were trending 31% below the five-year average. When viewing Q1 as a harbinger for the rest of the year, Melhim said there’s a 60% chance that 2025 ends with a double-digit decline year-over-year.
Up in Canada, Q1 shipments were actually 10% better than a year ago, though shipments trailed the five-year average by 14%. It’s possible that market uncertainty drove the uptick in Q1 shipments, as dealers sought to pre-buy the higher tariffs expected to be coming.
High-horsepower equipment (tractors and combines) has taken a pretty good hit in the U.S. Weak farming margins have finally caught up to this product category. Through March, shipments were down 23% year-over-year, and trailed the five-year average by 30%.
It’s been a different story in Canada. Shipments were up 9% year-over-year and 28% compared to the five-year average. As touched on with low-horsepower tractors, Melhim wondered if dealers were hedging against a potential increase in equipment prices later this year.
“It’s also possible that a cycle of equipment replacement has just started in Canada,” Melhim suggested. There hasn’t been as much growth in recent years, which could signal an aging of equipment fleets — to the point that replacement purchases can no longer be deferred.
In looking ahead to the remainder of 2025, tariffs are obviously dominating the discussion. But there are other factors to consider as well, some of which are actually quite positive.
Ag equipment beginning inventory has finally dropped after a two-year buildup. That said, the timeframe needed to sell inventory is still relatively high, roughly eight months for low-horsepower tractors and four months for high-horsepower equipment. Nonetheless, current inventory levels are approaching a level considered acceptable by the market.
Another positive development is that used equipment markets are normalizing, meaning that the gap between seller and buyer prices has narrowed. That’s typically a sign of healthier inventory levels.
However, as mentioned earlier, tariffs are the big “X factor” for companies trying to navigate the remainder of 2025. It’s not just finished whole goods either. As Melhim pointed out, nearly 60% of ag equipment imports are “intermediate products,” meaning that they support the manufacturing and final assembly of finished goods. Higher tariffs on those imports will likely increase the cost of equipment for farmers and consumers, leading to a pullback in demand. Additionally, any further shocks to the equity market could ultimately impact consumers’ ability to finance equipment, putting another damper on demand.
AEM members are encouraged to stay on top of emerging trends with our quarterly Equipment Market Update webinars. Agriculture and construction experts break down industry issues and pinpoint crucial changes in the landscape to help you refine your company’s strategy.
Save your seat for the Aug. 7 2025 webinar.
Construction
Optimism over the potential effects of disinflation and monetary easing in 2025 has given way to increased uncertainty in the global construction arena.
Two industry segments that led much of the growth in recent years, Infrastructure and Energy & Utilities, have extended their downward trends that began last year. On the other hand, commercial construction has begun to improve after a several-year struggle initiated by the pandemic. Residential construction also continues to improve, but is still operating in negative territory this year.
The largest global construction market continues to be North East Asia, driven largely by China. That market is larger than the next two combined, North America and Western Europe.
A closer look at the U.S. market. Concerns are being driven by a reduction in stimulus spending, weakened residential and industrial construction activity, as well as rising material costs driven by increased tariffs. Furthermore, optimism over the prospect of reduced taxes and deregulation that accompanied Trump’s election victory has been replaced by concerns over tariffs and potential trade wars.
GDP unexpectedly dropped to -0.3% in Q1. Still, the Federal Reserve has showed no indication of lowering interest rates anytime soon. Concerns over tariff-induced inflation have the Fed holding things in the 4.25% to 4.5% range until future data compels them to do otherwise.
How is all of this impacting U.S. construction activity? Nonresidential spending fell in March after reaching an all-time high February. The February bump was likely due to the frontloading of construction activity ahead of anticipated tariffs, which are expected to impact the price of core materials like steel and aluminum. Spending also declined in 11 of 16 nonresidential segments in March. One bright spot continues to be data center construction.
As a result of the March downturn, the labor market has also cooled down. Job openings and hiring have both slowed in recent months.
A closer look at construction equipment sales. A solid string of growth came to an end last year. Overall equipment sales for 2024 were down 5% year-over-year. That is a bit surprising because construction spending has continued to grow. As Melhim discussed, it’s possible that weaker equipment demand was driven by factors such as higher interest rates and newer equipment fleets.
“Despite this drop, we’re still at a historically high level of sales,” Melhim pointed out. To that point, 2024 equipment sales still paced 8% ahead of the five-year average.
Used equipment markets have also been functioning better. Inventory levels of used dozers and wheel loaders have been coming down. Selling prices are also returning to a healthier level, suggesting that inventory levels are more in balance with demand, which ultimately bodes well for new equipment sales down the road.
In conclusion, there is no doubt that both the agriculture and construction equipment markets are facing some headwinds. The biggest headwind of all is uncertainty — and that’s why contractors, farmers, dealers, and manufacturers are all hoping for a little more clarity as 2025 wears on.
Learn More
In addition to its quarterly Equipment Market Update webinars, AEM continues to offer a wide range of other business intelligence and market data products. For more information, contact your Account Success Advisor.
