Construction Outlook for 2025
2025 is looking like an improved environment for the construction and manufacturing sectors, thanks to moderating inflation, lower interest rates and steady growth in the nation’s overall economic activity.
Bernard Yaros, Jr., lead U.S. economist at Oxford Economics said, “We anticipate a federal funds interest rate of 2.75% by the end of 2025, down from the recent 4.75% rate. We also see an average inflation rate of 2.2% in Q4 of 2025, which will be within spitting distance of the Fed’s target of 2.0%.” Corporate profits are projected to wrap up 2024 with a 9.6% increase, and a 9.0% increase for 2025. Both of these are up from the 6.9% gain in 2023.
As Money Gets Cheaper, Construction Rebounds
Housing activity is a big driver for the U.S. economy, and economists are projecting a nationwide upsurge. Yaros says, “We forecast housing starts to increase by 6.2% in 2025, after a 2024 4.7% fall and 8.4% decline in 2023.” Lower mortgage rates and a decline in the cost of money will fuel this growth. Experts cite the fact that those currently holding onto 3%-4% mortgages will see it’s less painful to give them up, sell their current homes, and move up.
Industrial policymaking in America is having a reemergence, thanks to the Inflation Reduction Act, Chips and Science Act and the Infrastructure Investment and Jobs Act. Future prospects are looking quite positive for contractors who are able to participate in major public works, as manufacturers are receiving billions of dollars in subsidies for large-scale infrastructure projects, many in support of technological transformations, like the growth in AI and broadband expansion.
There is a darker side of this, however. For contractors dependent upon multi-family construction, hotels or existing office retrofits, the 2025 outlook is somewhat bleaker, due to high interest rates that have led to high financing costs. Partnered with general inflation, and increased regulatory oversight, certain contractors have become vulnerable to a lack of work and are concerned for the future. 2025 is looking to be a transitional year for them, with 2026 likely better as lower interest rates finally take root.
Employment Levels
Consumer confidence is projected to continue increasing in 2025, and that fuels optimism for the construction industry. Also powering this optimism is healthy employment levels. Economists peg unemployment rates of 3.5%-4.5% as the sweet spot that balances risks of inflationary wage escalation and economic recession. The Q4 2024 rate was at 4.1%. The magnitude of a lack of skilled labor, while still many contractor’s #1 challenge, is abating as hiring has slowed due to a slowing economy and the shrinkage of the number of available unskilled jobs. This reduction in available employment has also given workers less bargaining power, so there is some relief in the trendline of worker wages. That rate has been about 3.7% in 2024, down significantly from the 8-10% levels of the previous two years.
A Crystal Ball for the Road Ahead
Construction companies and their employees are advised to be vigilant in being aware of any changes in the following:
- Interest Rates – The pace and amounts of cutting will be especially impactful, good or bad, for the construction industry.
- Inflation – Many business plans could suffer as the consumer price index returns to positive territory.
- Tariffs – These represent price increases to construction companies who must purchase materials abroad.
- Geopolitics – It pays to be informed. Turmoil on the world’s stage can (and does) impact supply chains, which can quickly throw a monkey wrench into the economy.
The resilience of the U.S. economy has been remarkable. Economic experts don’t anticipate a recession, as the Fed will be dialing back monetary policy restrictiveness, and they are seeing no glaring economic imbalances.
At Contractor’s Machinery we too will be watching these trends in 2025 and looking forward to strengthening existing partnerships while also building new ones!
CMI December Blog Source Material – https://palletenterprise.com/construction-forecast-2025-a-welcome-economic-rebound/