MARKET REVIEW Go West, young man

Record amounts of construction equipment are being sold in North America – timely for the March ConExpo-Con/Agg exhibition! Off-Highway Research expects another good year in 2023 and a soft landing thereafter.

Sales of construction equipment in North America hit a record high for the second year running in 2022. It was the first time in history that more than 300,000 machines were sold in the region and Off-Highway Research expects a similar volume to be achieved this year.

Most countries around the world have seen a post-Covid bounce in their equipment markets in the last two years. Clearly Canada and the US are no exception. But what is interesting is how sharply sales have grown in the last two years, despite supply chain and transportation bottlenecks putting an unwanted ceiling on the number of machines which could be delivered.

The first point to make about the North American market is that the growth in the last two years has been in the higher volume, compact equipment classes. Compact tracked loaders have become sensationally popular in North America, with demand now running at 90,000-95,0000 machines per year.

Another growth area has been compact excavators – both what Off-Highway Research classes as mini excavators (up to 6 metric tonnes) and larger midi machines in the 6-12 tonne classes. The mini excavator market in North America is now in the region of 60,000-65,000 units per year and the midi excavator class adds a further 15,000 units.

As sales of these machines have grown, traditional products such as backhoe loaders and skid-steer loaders (the wheeled equivalent of a compact tracked loader) have fallen sharply out of favour. But demand for compact and midi construction equipment is still extremely high in both absolute terms - 230,000 – 250,000 units last year, depending on definitions, or 72-78% of unit sales.

The driver for growth in the compact segment has been residential construction. Activity has rocketed since the summer of 2020, when lockdowns and stimulus money encouraged many people to move to bigger properties or extend their houses to create a home office space. US residential construction was worth US$70-90 billion per month in 2022, compared to the 2017-2018 level of US$40-50billion per month (which was still a historically good figure).

When economists see the kind of sharp rises over the last two years which have happened in the residential market and compact equipment segment, they tend to frown and start using words like ‘bubble’ and ‘over heating’.

While Off-Highway Research believes 2022 will prove to be the high water mark for compact equipment sales in this cycle, we also think 2023 will be very good, with volumes almost as high as we saw last year.

In terms of economic fundamentals, yes the number of housing permits granted slowed down in 2022, but they plateaued at a high level, so there is still a good pipeline of work. In practical terms, order backlogs and lead times are such that many manufacturers are sold-out well into the second half of 2023, if not until the end of the year. That kind of backlog almost guarantees high volumes.

Compact equipment sales are likely to start dropping at the end of 2023 and certainly in 2024, but a relatively soft landing is expected. As clearly as residential building is being slowed by rising interest rates, there is still a huge shortfall of housing in the region – in the US it is put at a 3-6 million unit gap between the available housing stock and what is required. This is due to more than a decade of insufficient building following the devastating impacts of the sub-prime crisis in the mid2000s.

Another reason to be positive about the compact equipment segment in North America is our belief that the last 2-3 years have seen some industries and activities become more mechanised due to a shortage of labour. Landscaping is a prime example of an area which seems to be lacking workers following the ‘Great Retirement’ in North America in the Covid era, prompting business owners to buy machines for hitherto manual jobs.

Looking ahead though, it is the heavier equipment categories which provide greater promise as infrastructure schemes from President Biden’s Infrastructure Bill start hitting the ground. The articulated dump truck market already had a sensational year in 2022 and the crawler excavator market also hit a record high. Looking ahead, we forecast that demand for dozers and graders will also be strong for the coming years.

The forgotten market

When talking about North America, the USA of course dominates. However, the Canadian market should not be forgotten. Since the start of this year, Off-Highway Research has been offering a dedicated North American Service, which splits out Canada from the US. It has been an informative process.

The Canadian market accounts for 12-13 per cent of North American (USA + Canada) demand. At current levels, that puts Canadian equipment sales around 40,000 units per year. Although it is the smaller sibling to the USA, that still makes it one of the largest equipment markets in the world after the USA, China, India, Japan and Germany.

North American market structure

Many of the trends seen in the US over the last two years have been mirrored by Canada. The residential building market has boomed and infrastructure investment is now coming through to provide some stability and certainty for larger equipment sales.

The structure of the market is also similar, with mini excavators and compact tracked loaders having found favour in the last two decades, replacing traditional products.

Outlook

The medium term outlook for both countries is for continued high equipment sales this year, followed by a soft landing in 2024 and 2025. The fact that 2024 is an election year in the US is not helpful for sales, as it tends to be a period of uncertainty when equipment buyers put-off their capex decisions.

Off-Highway Research’s sentiment beyond 2024 is that the market will trend down slightly in 2025 and 2026 and rest. As much as the drivers for equipment sales are strong, there has been so much sold in recent years that a large population of young machines has built up in the market place. This will provide something of a barrier to new sales as

construction activity settles back down to more normal levels after the stimulus of the Covid years.

The emphasis is very much on a soft landing. Looking at the longterm trend, the high volumes we see being sold in the North American market today have built up over the course of the last decade. It is a different situation to the last peak in 2006, when volumes had shot up in the space of just three years.

North American CE market

For a more detailed picture on the North American market, please consider attending the Off Highway Breakfast Briefing on the Wednesday of ConExpo (March 15th). Full details are available at www.offhighwaybriefing.com. For more information about any of Off-Highway Research’s reports, data and services, please visit www.offhighwayresearch.com

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