Hardwood Floors June/July 2025

Market Matters (Continued)

U.S. real gross domestic product (GDP) growth will slow in 2025 and 2026 as growth is frustrated by uncertainty regarding the long- and short-term impact of the Trump Administration’s policies. The scope of the stated policies of the administration are so sweeping, if only partly implemented, they could have a major impact, either positive or negative, on the U.S. economy. Key assumptions and issues affecting the U.S. economy include: • Housing starts currently are above 1.35 million units annually and will continue to aid economic growth with starts averaging 1.5 million units through 2030. Starts increasingly favor single-family units (70 percent of total starts) which average 50 percent greater floor area over multi-family units. • Residential home improvements will be stymied in 2025 as the uncertain impact of the new federal policies becomes clear. Spending will recover slightly in 2026 before increasing at a moderate rate from 2027 onwards throughout the remaining forecast period. Buoying remodeling expenditures will be households, unwilling to sell their current low interest financed home in a desirable neighborhood, remodeling their existing residences. • Consumer spending, although growing modestly, is slowing as many consumers’ finances are being stretched by inflation, rising debt levels, and slowing employment growth. • Real personal disposable income will grow at an inflation adjusted annual rate of 2 percent or greater through 2030, largely driven by moderate growth in skilled and technical worker employment increases and general wage growth. Income growth will endure headwinds resulting from weak employment growth due to automation and a decline in unskilled labor jobs through 2030. • Non-residential building construction will grow throughout the forecast period, especially for education, transportation facilities, health care, lodgings, and institutional building types. Factors threatening the U.S. economy include: • Inflation will continue to be an issue among key commodities for consumers. This will be especially true if government spending is not sufficiently controlled, tariffs do not work as planned, and employment suffers, to name just a few. • Federal debt will exceed $36 trillion for the U.S. by the end of 2025 and the interest on this debt will be nearly equal to the U.S. annual defense spending budget for the same year.

• Slowing employment growth, the result of government lay-offs and slowing domestic production due to tariffs, if not offset by jobs created by firms onshoring, new investments in domestic production, and consumer spending will slow economic growth. • Reciprocal tariffs, the unknown effects of the imposition of tariffs on foreign imports equal to those imposed on U.S. exports to those same foreign nations. • Other potential threats to the U.S. economy include a widening war in Ukraine or the Middle East, new conflicts in Taiwan, the Persian Gulf, or other areas; a major domestic civil disturbance; another global pandemic; a major trade war threatening prices and logistical trains; a natural disaster requiring emergency aid; or other catastrophe.

Santo Torcivia is president of Market Insights LLC in Reading, Pennsylvania. He can be reached at 610.927.2299 or storcivia@marketinsightsllc.com.

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