The Reopening: A Long Road to Normalization Filled with Volatility and Uncertainty

The confusion is ending, but the real chaos is just beginning. The longest shutdown in U.S. history came to an end on Nov. 12, 2025, and the federal government resumed control of a stagflation-like economy further impacted by the 43-day shutdown, weakening employment, sticky inflation and softening industrial activity.

More importantly, long-simmering economic and policy storms are about to unfold.

1. The consensus that the Federal Reserve would remain accommodative is being questioned. The move toward a lower “neutral level” is being challenged by hawkish commentary from federal officials and focus on the lack of economic information due to the shutdown.
2. The upcoming ruling by the U.S. Supreme Court has raised doubts about the outlook for the Trump administration's tariffs program. The possible disallowance of some tariffs can play havoc on current trade policy causing confusion and uncertainty that carries into 2026.
3. International relations with China were supposedly settled by a recently announced trade agreement. However, not much has actually been implemented in the Rare Earth agreement (United States-Australia Framework For Securing of Supply in the Mining and Processing of Critical Minerals and Rare Earths) and especially with noticeably minimal activity in agriculture.
4. The financial markets have raised the issue of the artificial intelligence (AI) buildout by trying to quantify the aggressive assumptions with respect to future revenue that must be achieved to generate proper returns. The major concern is the rising use of debt for data-center finance; until 2025, AI expansion was driven primarily by profits and cash flow.

The U.S. economy was slowing as we entered the shutdown which likely reduced Q4 real GDP by 1.5% or more.  Many companies adopted a wait-and-see attitude which became widespread during the shutdown. This was most visible in the construction industry, which saw weaker activity and a sharp increase in abandonments and delays of projects not yet under construction. Optimism for the second half of this year has faded as companies try to deal with the unfolding uncertainty and volatility as the government reopens. Construction companies are also concerned about the imbalance in construction spending where the only source of strength is for data centers, power and infrastructure.

Projections of industry volume for off-highway equipment in fiscal year 2025 are essentially unchanged, but the storms brewing will likely weaken reported results into 2026. Construction equipment is still projected to be down 5% to 10%; farm, large tractors and combines down 25% to 35%; and mining equipment about flat to down 10%. Construction and mining fundamentals will likely show modest improvement into 2026 as inventory levels come under control. The farm sector outlook appears grim based on the forecast for record U.S. crops this year, implying weak commodity prices into 2026, the impact of uncertain buying of agricultural products by China, and reduced government payments in 2026 impacting farm income. Mining has the potential for a modest upturn in 2026.

Most companies are using the slowdown to plan an upgraded and refreshed product offering including a vast array of new technology-driven equipment. The needs of the U.S. and global economies continue to suggest excellent growth potential over the next five to 10 years in most off-highway markets, which will require capacity expansion and substantial capital investment to meet the needs. The following includes a summary of Caterpillar’s investment programs over the next five years to illustrate the challenges facing the heavy equipment markets.

Construction Equipment

Sales and Pricing to Improve as Inventory Levels Return to Normal, but Imbalanced Construction Activity Poses Risks

Construction activity has seen significant volatility in 2025, particularly in nonresidential markets. Residential construction has continued its multiyear slump as persistently higher interest rates keeps a lid on activity in that sector. Nonresidential construction started the year with a 17% decline in Q1 2025, but a second-quarter surge in civil construction brought a recovery in activity by midyear. Throughout the first half of 2025, however, construction companies saw a rise in construction projects abandonments, particularly for projects in the preconstruction phase, and delays attributed to cost escalation, unfolding tariff policies and high financing costs.

Overall construction activity began to soften during the summer and took a downshift in August/September, according to ConstructConnect. The U.S. government shutdown further exacerbated the softening of construction activity. Current trade information suggests that 60% of contractors are experiencing a shrinking of backlog.

While there is significant optimism for the longer-term, industry participants are reported to maintain a cautious outlook as the government reopens, given the uncertain interest rate outlook and numerous political and policy issues.

One major concern is the imbalance of construction spending. Virtually all the sector activity is being driven by the surge in data centers, the power sector (associated with the data center activity) and infrastructure. Most other segments of construction remain soft.

Construction equipment demand in 2025 is still expected to see flat to a negative volume decline of about -10%. The good news is that the production cuts and marketing incentive programs in place for the past year have worked, setting the stage for at least a modest recovery in Q4 2025 and into 2026. Most manufacturers have completed their inventory reduction programs, which will likely mean increased production, sales and more favorable pricing in Q4 and into 2026. Rental companies are also expected to increase fleets next year.

Reported operating numbers will be better, likely helped by favorable foreign currency, a weak dollar, somewhat lower manufacturing costs and favorable price comparisons. Report results, however, will then be reduced by tariffs, which will have a much greater impact particularly in Q4 2025.

Farm Equipment

The Sector Muddles Into 2026 Impacted by Huge Crops and Uncertain Export Markets

The farm equipment sector is completing its third year of decline since its 2022 peak. All key industry fundamentals have remained negative in 2025 — weakening commodity prices, elevated interest rates, volatility in acreage — and farm equipment manufacturers continued to report weak production down dramatically (particularly in North America) to reduce bloated new and used inventories.

The level of excess inventories has begun to shrink, but it will likely take at least until the end of 2025 or the first half of 2026 to get to desired levels. The government shutdown delayed agriculture payments and farm legislation, but the reopening legislation will allow payments to resume. More importantly, the bill contains an extension of the expired farm bill and provisions to insulate the agriculture sector from further shutdowns through Sept. 30, 2026.

The volume forecasts for 2025 are essentially unchanged: down 25% to 35% for large tractors and combines; a decline of 5% to 15% for small tractors, and flat to down 10% globally. The industry continues to operate at below 85% of normal demand; the hope has been that the sector is close to a bottom with a potential upturn sometime next year.

Recent industry events suggest 2026 will more likely be a continuation of weak activity awaiting resolution of several developing problems:

1. The U.S. Department of Agriculture (USDA) has confirmed record average yields for corn (186 bushels per acre) and soybeans (53 bushels per acre). The corn carryover was raised to 2.154 billion bushels with an average corn price for 2025/2026 of $4; History indicates that a carryover more than two billion bushels leads to sub $4 corn and unprofitable farmers. The large soybean crop results in a 290-million-bushel carryover and an average price of $10.50. Farmers have difficulty being profitable at these price levels which would negatively impact farm income levels.
2. Farm income will likely be under pressure in 2026. We have a two-level farm economy this year: Strength in livestock reflecting strong beef prices; extreme pessimism among crop producers. Farm income will be up in 2025 compared to last year because of about $40.5B in government payments. Farm income will likely fall next year due to lower commodity prices and reduced government payments (though a farm bailout is possible).
3. The farmer is facing a negative margin outlook. Recent input costs have skyrocketed over the last several years as commodity prices have fallen, for example: feed +18%; fertilizer +37%; pesticide +25%; machinery +23%; interest rates +37%, according to Purdue University. Recent data indicates that farmers are using 78% of government payments to pay down debt and for working capital: and 11% for family support.
4. The recent trade agreement with China is far from producing any material results. The agreement stated that China will buy 12 million tons of soybeans this year (they bought 6 million in the first half of 2025) and 25 million tons of soybeans over the next three years through 2028. This compares to an average of 29 million tons over the last five years and 27 million tons over the last 10 years. To date, China has purchased just over 1 million tons and just announce another 1-million-ton purchase (total 2 million tons versus a promised 12 million). The further problem is that China continues to buy from Brazil (over 79 million tons to date); in addition, Brazil, and now Argentina, soybeans are cheaper than the U.S. because we still maintain a 13% tariff. Further, Reuters reports that a glut of soybeans exist in China as stocks have grown by 3.6 million tons to 10.3 million tons on Nov. 7, 2025. China purchases will be suspect until the trade agreement is clarified.

The bottom line is 2026 volume improvement for farm equipment is questionable though production will benefit somewhat from inventory reaching targeted levels. The shocks to the agricultural markets of record North American crops, questionable outlook for farm income and export uncertainty suggests that any material fundamental improvement may have been postponed well into 2026 or 2027. Weather and the resolution of the China trade program are among the key variables to pay attention to in the coming year.

Mining Equipment

Waiting for the Upturn

Capex in the mining sector remains focused on the supporting domestic supply chain, critical materials for national security, cost savings and improving efficiencies including automation. Spending has remained disciplined, waiting for real orders to materialize and avoiding the hype associated with the future need of the U.S. economy.

It appears that mining projects and spending in 2025 into 2026 continue to be moving sideways; we note that recent weakness of coal prices has reduced demand from that sector, caused some machines to be parked, and reduced rebuild activity.

Softening of capital expenditures in the mining sector are still expected to continue through 2025 and into 2026. This primarily reflects a slowing of project development worldwide, elevated interest rates, uncertain green energy policy, especially for electric vehicles, and continued tariff chaos.

It is still expected that 2025 sales to users of mining equipment will be about flat to down 10% before any impacts of tariffs. The good news is that industry leaders, Caterpillar and Komatsu, have indicated that they have achieved close to their desired levels of inventory. The stage is set for an improvement in demand as soon as the economic and policy environment improves. The near-term key is the resolution of U.S. trade policies. The U.S. needs more capacity in most mining materials (especially rare earth minerals), suggesting a bright future for the mining sector.

Caterpillar Growth Strategy 

2025 to 2030 and Beyond Require Significant Capacity Expansion and a More Than Doubling of Investment

Off-highway equipment manufacturers serve markets that are projected to have significant growth opportunities over the next five to 10 years. Virtually all participants are working on new and upgraded technology and equipment to capture the growing demand.

The cost of developing and producing the new offerings is clearly going to be substantial, likely far more than companies have historically spent.

Caterpillar recently provided insight into its strategic plan to meet its growth and profitability targets over the next five to 10 years. It is clear the company is raising the bar for industry participants and the cost of keeping up with the industry leaders will be far above historical levels of spending.

Sales Outlook: Caterpillar has raised its corporate sales and revenue targeted growth rate to 5% to 7% over the next five years, a major step up from the 4% reported in recent years. 

It is likely that the company's Construction Industries (Equipment and Services) and Resource Industries (Mining Equipment) will be in the lower end of the range and its Power and Energy Sector (formally Energy and Transportation), which includes Solar (Gas)Turbines and Large Engines, at the upper end of target growth rates.

Construction Industries (Equipment): CAT believes secular tailwinds should provide at least a 25% growth in global construction spending over the next 10 years; residential 25%; nonresidential 15%; civil infrastructure spending 35% and rental 51%. U.S. Forecast: Forecast is for CI sales in 2030 to be 1.25 times its fiscal year 2024 results.

Resource Industries (Mining Equipment): CAT believes that the solution for more energy and infrastructure starts with mining. Over the next 10 years, critical materials demand will grow 39% (copper 22%, graphite 118%; nickel 52%; other battery 125%); construction aggregates up 28%. Regarding more productive equipment, the largest opportunity is accelerating autonomy with both new and retrofit equipment. The expectation is for CAT Autonomous to triple in growth by 2030.

Power and Energy: CAT equipment will follow the strong growth for energy over the next decade. Global electrical demand projected up 43%; global data center electricity demand up 200%; oil and gas still 50% of total energy (growth natural gas). The power and energy sector will more than double revenue over the next five years led by significant expansion in gensets led by solar turbines, and large engines.

Services: Caterpillar projects big opportunity in growth in services revenue across all three primary segments; projected to grow from $24 billion in 2024 to $30 billion in 2030.

All this growth will come at a big cost: Capital spending will at least double from 2025 to 2030 compared to 2019 to 2024. Research and development spending in the next five years will also be 1.5 times the level spent in the same timeframe.

Digital and technology investment from 2025 to 2030 will also rise 2.5 times compared to 2019 to 2024. CAT has adopted the philosophy of the need to embrace technology as an enabler rather than a threat. Money will go for projects such as personalized digital marketing, operator assistance, remote control and task autonomy, and full autonomy.

Bottom line: CAT’s big plans will require big money. Its strategy will force most competitors in the off-highway sector to develop their own strategy on how to compete over the next five to 10 years.