Trendlines: Why compact machines are top of the market

Is it not true that we live in interesting times? I remember hearing this quote as a kid growing up and throughout the decades that followed. And yes, it seems that times just keep getting more and more interesting. Who would have ever guessed that a pandemic would create a booming economy with decades high inflation? With the rising tide of liquidity, nearly all ships have risen.

Peter T. Yengst is president of Yengst Associates, a market research and consultancy in Wilton, Conn. (Photo: Peter T. Yengst)

One aspect to the economy that cannot be ignored is the inflation-heavy real estate market, which had yet another outstanding year with 20%-plus gains in pricing. This is great for homeowners and not so great for renters who can’t lock in their monthly payments for the next 30 years.

Nonetheless, the market is hot from a pricing standpoint, but this reality is blurred when looking at the inventory of available homes. Some inventory in housing markets are down more than 90% when compared to years prior to COVID, and only a handful of markets have experienced inventory gains of available homes.

Regardless of whether you’re moving or staying put, the real estate market remains intact, and many homeowners have been funding restoration and other construction projects throughout the country, which has helped propel sales of compact machinery to even greater heights.

After a surprisingly banner year in 2020 during the onslaught of the pandemic, I expected compact machine sales to ease a bit as 2021 started, at least in terms of growth rates. While 2020 was a bloodbath in sales for the overwhelming majority of earthmoving machinery, small machines such as compact track loaders and mini-excavators stayed afloat and logged single-digit gains thanks to strong demand and a rise in residential spending.

2022 off-highway equipment market outlook

Sales expectations for the year ahead remain unknown. But if I had to guess, I wouldn’t bet against another record breaker, though it’s probably safe to say we won’t be seeing another gain of 30% over 2021. Much of this market relies on the health of the economy and, most importantly, the housing sector, which continues to mystify. However, a bevy of factors are at play these days that could pump the brakes a bit going forward.

Such hindrances as higher interest rates, a la the Federal Reserve, is forefront in my mind, as are raw material prices and a continuance of supply chain issues. The Fed is doing its best to slow down the current system without creating a fatal crash-and-burn scenario that could result in a recession.

The Fed is planning on raising rates to cool down inflating prices in the housing market, financial markets, at the pump, in the grocery store and throughout the rest of the economy. Housing has overheated thanks to limited supply, historically low rates and hordes of hungry investors outbidding each other.

At the same time, housing starts are softening but still aiming to expand upon the currently lacking inventory levels we’re seeing nationwide.

I remain confident that the construction and earthmoving machinery markets will make it through 2022 just fine. And once again, the little machines shall lead them.

Trendlines is a column devoted to the off-highway equipment markets, which appears each month in Diesel Progress, written by Peter Yengst - president of Connecticut-based market research and consultancy Yengst Associates.