For several reasons, 2025 hasn’t delivered the growth many were expecting earlier this year. Global construction activity has fallen short of expectation, and ag equipment sales have continued to falter.
However, despite some persistent and notable challenges, non-road equipment manufacturers are once again hoping that next year will be the one when things finally turn around.
“It should come as no surprise when I say equipment demand has seen better days,” said Al Melhim, AEM’s senior director of business intelligence. “In fact, over the past two years in the U.S. and Canada, sales of both ag wholegoods and parts have been growing at a negative rate. In a technical sense, that puts the ag equipment industry in a recession.”
The North American construction industry hasn’t done much better, according to Tom Hopgood, a GlobalData Construction Economist. Forecasts have been downgraded throughout the year, with the latest predicting negative growth this year.
Melhim and Hopgood were featured presenters during AEM’s most recent “Business Intelligence Q4 Equipment Market Outlook” webinar on Nov. 6. They discussed how this volatile year for the ag and construction industries is looking to wrap up—and how forecasts for 2026 are beginning to take shape.
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North American Ag Equipment Continues its Slide
A period of growth earlier this year proved to be short-lived. As of mid-year, overall ag equipment sales had declined by roughly 12% in both the U.S. and Canadian markets. Melhim pointed to several factors behind this trend, including weak farm income and elevated cost of capital investment.
“It is worth noting that the price of ag equipment has stabilized,” Melhim pointed out. “That means the drop in sales is due to a drop in unit sales—and the drop is really ubiquitous across all ag product categories.”
Low-horsepower tractors. As of September, U.S. sales were down 27% compared to their five-year average, and 6% year-over-year. In Canada, sales were 21% below the five-year average. However, sales were running 5% higher than the previous year, thanks to some modest improvement in Q3.
Melhim noted that this product category typically sees some seasonally driven growth in Q4. That said, he doesn’t anticipate any bump beyond the norm due to the numerous economic headwinds consumers are facing.
High-horsepower equipment. “The situation with high-horsepower and four-wheel-drive farm tractors, as well as self-propelled combines, has been even worse,” Melhim said. “The impact of prolonged margin pressure in farming shows here.”
As of September, U.S. high-horsepower equipment sales were 26% and 29% below their five-year average and year-over-year, respectively. In Canada, a solid Q1 has given way to pretty rough second and third quarters. As of September, sales were running 6% above the five-year average, but 4% lower year-over-year.
The struggle with high-horsepower equipment isn’t confined to just North America, either. Melhim explained that European markets have also endured a steep downturn. In search of a bright spot, Melhim said an expansion of livestock production in Latin America and the Far East has boosted demand for equipment like foragers and balers in those markets.
Factors That Could Boost Ag Equipment Demand
As touched upon earlier, a combination of economic headwinds has resulted in a prolonged ag equipment sales slump. Weak commodity prices and farm income, coupled with high interest rates, have created a risky investment environment for North American farmers. Additionally, in the absence of a formal Farm Bill, provisions within the One Big Beautiful Bill Act represent the only source of meaningful support for farmers. However, Melhim said the effect of those provisions won’t be felt until 2027.
But things can’t be all doom and gloom… can they? Melhim pointed to a few trends that, in theory, should have a positive impact on new ag equipment demand in the coming months.
Fleet age. As of September, the ratio of five-year-old and 10-year-old ag equipment began approaching unity. When that happens, Melhim said pressure ramps up on farmers to begin replacing their aging equipment before breakdowns and repair costs begin to negatively impact their operations.
Used equipment market has cooled. Used ag equipment is becoming a less attractive alternative to new equipment. Used equipment inventories are much lower than they were a few years ago, which is driving prices up faster than those of new equipment. “This dynamic, all else being equal, is a positive development for selling new equipment,” Melhim said.
Ag finds a lifeline in the livestock sector. Beef prices have been rising, cow-calf producers are poised to top last year’s record profit, and feedyards are cashing in on all the positive momentum. Additionally, Mexican cattle imports have been halted due to concerns over the screwworm parasite. That’s creating a cattle shortage, which drives prices up further and benefits U.S. cattle ranchers. “This positive outlook should lead to increased demand for livestock-specific equipment such as feeding, handling, and manure-management equipment,” Melhim said.
Global Construction Activity
At the beginning of the year, economists were forecasting 2.77% growth in global construction activity in 2025. That growth has been downgraded by more than a third to 1.74%.
Some construction segments are faring better than others. Infrastructure spending has remained strong at 5.5% growth, followed by industrial at 4%, institutional at 3.3%, energy and utilities at 1.8%, and commercial at 0.9%. Residential construction continues to slump at -1.6% this year, said Hopgood.
From a regional perspective, South Asia continues to be the leading market across the globe, growing roughly 7% this year. However, this year’s construction activity has seen a sharp decline from 2024. Then, at the other end of the spectrum, is North America. Early-year forecasts pegged growth at 1.4%. But as the volatile year has dragged on, North American construction is now looking at a 2.2% contraction, noted Hopgood.
Looking ahead, total global construction activity is expected to grow 3.33% next year and 3.7% in 2027. Infrastructure construction, specifically, is expected to grow at a slightly cooler rate than it has been. All other segments are expected to see the pace of growth pick up, including residential which is forecasted to grow 1.8% in 2026, Hopgood added.
A Closer Look at U.S. Construction
Tariffs and trade policy have thus far placed additional strain on the U.S. construction economy. Factory activity shrunk for the eighth straight month in October. Tariffs have also caused delivery delays and strained supply chains. That has led to project delays and even cancellations in some cases.
On the topic of tariffs, corporate anxiety has somewhat faded since April, although tariffs remain a concern for many (58%). To deal with “the new normal” of higher tariffs, cost-cutting has been the preferred strategy by manufacturers, as opposed to raising prices on consumers who are already in a fragile state.
On a more positive note, rapid deployment of AI infrastructure has created a need for data center construction in the U.S. “This is one area of great growth,” Hopgood said. “Up to 60% of the manufacturing sector said they need to deploy AI within their businesses by 2027 to allow their businesses to grow.”
The impact of AI data centers on local energy consumption remains a concern. According to the North American Electric Reliability Corporation, an international non-profit organization, data centers could account for 12% of total energy use by 2030. That could lead to power supply shortages across roughly half of the country over the next decade, noted Hopgood.
To help combat those potential power shortages, companies like AWS, Meta, and Microsoft are looking to nuclear power to become more energy self-sufficient. For example, Hopgood pointed to two projects in 2027 where nuclear power stations in Pennsylvania and Illinois were going to be decommissioned, but Meta and Microsoft are bringing them back to life for their own use.
On another positive note, the Federal Reserve’s recent Benchmark Interest Rate reductions should help drive more investment in U.S. construction. That will help support future growth, which helps support the hope for better days ahead in 2026.
