Hardwood Floors June/July 2025

INDUSTRY INSIGHTS

MARKET MATTERS

By Santo Torcivia

As the economy moves into 2025, it does so on a strong footing. Consumer spending and real disposable personal income both are growing at acceptable levels, and productivity, driven by technological innovation, is creating strength in the U.S. economy. Non-residential construction is rising slowly and should begin a stronger growth trend later in 2026. A major uncertainty facing the U.S. economy and this forecast is the impact of the wide-ranging proposed tariffs and the federal government budget cuts and labor lay-off initiatives being instituted by the Trump Administration. Tariffs could create chaos for supply chains, dislocate manufacturing and sales, increase unemployment, and kick-up inflation. Concerns regarding the current state of the U.S. economy include: Inflation: Propelled by high energy prices, logistical issues, and major budget deficits, these factors keep commodity prices high. The current administration has removed drilling, leasing, and other restrictions on the U.S. energy industry, which should reduce the rate of inflation. Tariffs: Many serious questions exist surrounding the proposed tariffs on China, Canada, and Mexico, the extent to which they are imposed, and their INFLATION, TARIFFS, AND BUDGET CUTS Uncertain Economy:

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overall impact. The tariffs also could create supply chain disruptions if firms re-align their supply agreements to firms in nations with lower or no tariffs on their U.S. imports. They could be inflationary due to the cost increases caused by the tariffs, or they could have a positive impact on the economy if they increase consumer spending and employment by stimulating exports and employment. Federal spending and deficits: Federal spending in fiscal 2025 will be an estimated $7.4 trillion, an increase of 69 percent over 2019 spending and $2.0 trillion more than anticipated total 2025 federal receipts. The increasing amount of funds required to finance this debt thus are not available to be invested in the U.S. economy. Interest rates: Given that inflation continues to be a major issue, and 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 7.4 percent in 2025. Tax cuts: The administration’s proposed tax cuts, if implemented, will increase economic activity enough to raise tax revenues, and if federal spending falls sufficiently, inflation will not rise. Otherwise, the risk is that the converse will be true.

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