Hardwood Floors February/March 2025

By Santo Torcivia

• To the extent that tariffs are used successfully as a tool to open markets to U.S. exports and incentivize on-shoring of production plants, the U.S. should see a rise in manufacturing jobs and a rise in the middle-class. On the downside, it will cause import prices to rise on nations covered by tariffs, contributing to inflation. U.S. real GDP growth will match growth closely in the prior year. Economic growth is forecasted to fall slightly in 2025 and remain flat in 2026 as the economy adjusts to lowering interest rates before returning to trend growth (+2 percent) in 2027. The scope of the stated policies of the Trump Administration could have a major impact, either positive or negative, on the U.S. economy. The Federal Reserve has pulled down the rate of inflation and, lacking any unforeseen situation, finally should return inflation to a manageable annual growth rate of slightly above 3 percent. The Fed’s target rate for inflation is 2 percent.

CONCERNS REGARDING THE CURRENT STATE OF THE U.S. ECONOMY: • Inflation growth has slowed due to Federal Reserve rate hikes, declining energy prices, and supply chain improvements. Even so, commodity prices currently are 26 percent above their levels in 2019, and these costs are draining consumers’ purchasing power. The overall inflation rate, as measured by the Consumer Price Index, was 4.1 percent in 2023 and should average 2.9 percent in 2024, falling to 2.3 percent in 2025. Prices almost never fall (that would be deflation, a generally onerous state of economic affairs), the rate of growth merely slows. Therefore, past price increases are very much a part of all current commodity prices. • Federal spending in fiscal 2024 will be $6.9 trillion. Since 2019, $12.5 trillion has been added to the outstanding federal debt, which now stands at $35 trillion. Total nominal GDP in 2023, representing the value of all the goods and services produced in the U.S. that year, was $27.7 trillion. The outstanding deficit now represents 126 percent of U.S. GDP in 2023. • Given that interest rates are linked closely to inflation, the U.S. bank prime rate remains elevated and only falling slowly. It is expected that the prime rate will fall to 7.08 percent in 2025.