Q1 2025 ECONOMIC REPORT
Hello members! Welcome to the 2025 Q1 Economic Report from Peer Executive Groups. Currently, the global and national economies are going through some substantial changes, so hopefully this report illuminates the most important developments surrounding the construction industry from both a macro and micro perspective.
Our last Economic Outlook was optimistic regarding 2025. Things have unfortunately grown more realistic with the recent political and economic news. This report will cover the market outlook in construction and industrial production from both a National and Regional Perspective, the recent trends in equipment pricing, the current state of the labor market, the effects of the newly instated tariffs and possible strategies to manage them, and a look ahead at the rest of 2025.
RE: The Current Macro Outlook - There are increasing supply chain pressures due to geopolitical challenges, resulting in higher material costs and labor shortages. In addition, inflation has proven stickier than originally thought, causing the Fed to no longer entertain cutting interest rates further. In general, there is a trend across the economy of slowing growth in our markets. Fortunately,
“Rising real incomes and inflation-adjusted savings balances on the consumer side along with elevated corporate profits and recovery in business applications on the commercial side support our expectation for GDP to transition to Phase B, Accelerating Growth, in the near term. These factors will drive rise in both retail and business-to-business spending. Fixed investments in capital or construction will face lingering headwinds from still-high interest rates, but the economy will eventually adapt to the new reality.”
ITR, The Core US Economy at a Glance – Feb 2025 Report
Essentially, we are looking at a shock period from the newfound government changes. Fortunately, consumer and B2B spending should carry the weight until the shock settles, and we find a good footing again in capital and construction.
RE: Strategy in the Macro-Economy – focus on your consumer and business customers and expect less projects to be supported by institutions or other, more heavily government supported projects. For sourcing machinery and products, reduce reliance on global networks, lock-in pricing with long-term vendors, and focus on the use of technology, AI, and automation within your systems to improve efficiency and reduce risks.
In addition, beware of the current dip in the Housing market as a lead indicator for Nonresidential Construction.
See this as an opportunity to change your behavior to avoid the hard landing.
“These preparations can be in the form of cash planning, discretionary capital expenditures, sales promotions and projections, and marketing/sales plan rollouts.”
ITR, Trends 10 Report – Feb 2025
RE: The Construction Machinery Market
“Many machinery markets, such as construction machinery and material handling equipment markets, are below year-ago levels. These markets are historically sensitive to high interest rates. However, as businesses become accustomed to the higher-rate environment, we anticipate rise, albeit muted rise, from many machinery markets in the coming years.”
ITR US Nondefense Capital Goods New Orders (excluding aircraft) Feb 2025 Report
Be on the lookout for the “new normal” to set in place with our plateaued higher interest rates, and for construction to recover.
RE: Equipment
“General construction equipment demonstrated stable results at auction and declines month-over-month at retail. Heavy earthmoving equipment generally demonstrated moderate declines at both auction and retail.
Forklift trucks saw moderate decreases in retail and auction, and Truck Tractors saw moderate declines in retail and a slight rise at auction.”
Rouse Analytics, The Equipment Report – Jan 2025
RE: Construction Planning and Starts
Construction planning in January 2025 saw about 6% growth from December 2024.
“Nonresidential planning activity saw diversified growth in January, with every vertical experiencing positive momentum,” stated Sarah Martin, associate director of forecasting at Dodge Construction Network. Although facing the previously described headwinds of uncertainty over fiscal policies, ongoing labor shortages, and elevated construction costs, further monetary easing and the sizable number of projects in planning should support construction spending in the back half of the year.
Moving on to Construction Starts, January 2025 saw a 6% decrease in starts from December 2024. Nonresidential starts saw the greatest decrease, with an 18% recession, residential decreased 1%, and lastly, nonbuilding starts increased by 4%. Starts face the same headwinds as planning, albeit more immediate. Dodge is hopeful for accelerating growth in the second half of the year based on resumed rate cuts from the Fed.
“Regionally, total construction starts in January rose in the Northeast and South Central, but fell in the Midwest, South Atlantic, and West.”
RE: The Labor Market
“Leading indicators signal that economic conditions will improve this year, though there is typically a delay between stronger economic data and when businesses feel confident increasing hiring. As such, upward momentum in Employment will build in early 2026. Monitor inflation trends to adjust compensation strategies to be competitive for the most skilled workers.”
ITR, US Private Sector Employment, March 2025 Report
RE: Tariffs
One of the largest stories of the last week is the newly imposed tariffs from the Trump administration. These trade moves will impose a 25 percent tariff on products from Canada and Mexico, and add another 10 percent tariff to previous levies on China. In addition, Trump plans for reactive tariffs to go in place to counteract any counter-tariffs placed by these countries. (New York Times, Trump Trade War Economy)
Regarding how this will affect the economy,
“The answer is difficult to encapsulate for the entire economy beyond a probable drag on GDP growth with a more discernible impact on Total Industrial Production growth and additional, though marginal, inflationary pressures.
What we learned in 2018 is that the “impact” answer varies from industry to industry and company to company.”
ITR Economic Outlook Feb 2025 Report
Tariffs will make their way into consumer prices, as well as companies further removed in the supply chain from the raw material. They will be felt more acutely in some industries and regions than others. Inspect your reliance on imported material and look for local substitutes or clearer supply chains as this portion of the economy becomes affected. In addition, as previously stated, lock-in costs with long-standing vendors and diversify your sourcing.
RE: Look Ahead
Although we are facing a strong shock from the recent developments in fiscal policy, foreign diplomacy, and the sticky high inflation rate, ITR, Dodge, and other sources are still projecting a positive macroeconomic outlook for the rest of 2025. This will be seen in a slow, but sure return to a new normal, albeit with higher interest rates and a greater focus on the microeconomic impact of government decisions. As previously stated, now is a good time to focus on more efficient processes, locking in prices with long-term vendors, moving to more local sourcing for materials, focusing on consumer and corporate markets, and preparing for less demand. Thanks for reading/watching and hope to see you next quarter.
Written by Noah Crowley