b"YOUR TOOLKIT FOR BUILDING EXCELLENCEcontinued from page: 16rate of 2.75% by the end of 2025, down from a recent 4.75%,of artificial intelligence, said Basu.said Yaros. And we look for inflation to average 2.2% in theFor contractors dependent upon multifamily construction, final quarter of 2025, which will be within spitting distancehotels, or retrofits of existing office space, the 2025 outlook of the Feds 2% target. Thats an improvement from the 2.5%is a bit more bleak. High interest rates have led to very high inflation level toward the end of 2024. (These figures representfinancing costs, along with the general inflation experienced the Federal Reserves preferred measure of inflation: the corewithin the construction sector, said Basu. And banks have personal consumption expenditure deflator (PCED) whichbecome more reluctant to lend, partly because of an increase strips out volatile food and energy prices). in regulatory oversight. As a result, certain contractors have Relief from the costs of interest and inflation will help fattenbecome vulnerable to a lack of work, and they are quite the bottom lines of businesses everywhere. We anticipateconcerned about 2025. corporate profits will increase 7.1% in 2024 and 5.8% in 2025,A change in fortune will not happen overnight. With lower up from their 1.5% gain in 2023, said Yaros. interest rates, there'll be an easier time lining up project Reports from the field confirm the economists optimisticfinancing at acceptable cost, said Basu. But these things take view. Our members are looking forward to a growth year intime. We might see some softness in a meaningful fraction of 2025, largely from expectations that interest rates will decline,contractors in 2025. And then perhaps things get a bit better said Tom Palisin, Executive Director of The Manufacturers'in 2026 as these lower interest rates prompt more activity.Association, a York, Pa.,-based consortium with nearly 500 member companies (mascpa.org). The change in fortunesHealthy employmentcant come soon enough, he added. High interest rates haveThe economy does better when people are optimistic, since been putting constraints on many of our members who haveconsumer spending accounts for a large portion of the nations been trying to maintain their financial margins, so relief inbusiness activity. While consumers remain troubled by the this area will be helpful. residual effects of inflation in the form of high prices for gas Construction rebounds and groceries, they remain in a fairly good mood. We look for consumer confidence to move slightly higher in 2025, Analysts expect construction companies and manufacturerssaid Scott Hoyt, Senior Director of Consumer Economics for to share in the nationwide economic upsurge. EconomistsMoodys Analytics (economy.com). expect healthy growth in housing activity, a mighty driverWhy the optimism? Healthy employment levels. We look for the economy. We forecast housing starts to increase byfor the unemployment rate to end 2025 at 4.3% and 2026 6.2% in 2025, after falling by 4.7% in 2024 and declining 8.4%at 4.2%, said Yaros. This is roughly in line with the 4.1% in 2023, said Yaros. reported toward the end of 2024. (Many economists peg an Why the rebound? A decline in the cost of money and aunemployment rate of 3.5% to 4.5% as the sweet spot that concomitant loosening of credit standards. Lower mortgagebalances the dual risks of inflationary wage escalation and rates should help the single-family home market, said Billeconomic recession.) Conerly, Principal of his own consulting firm in Lake Oswego,If favorable unemployment figures will encourage consumer Oregon (conerlyconsulting.com). It will be a little less painfulspending, employers should also enjoy relief from the for people with 3% or 4% mortgages to give them up, selldeleterious effects of the past years tight labor conditions. their current houses and move up. While many contractors continue to view the lack of skilled Housing is not the only construction sector that will do well.labor as their number one challenge, it is not necessarily of This is the era of the megaproject, and future prospects arethe same magnitude as a year ago, said Basu. The number quite positive for contractors who are able to participateof available unskilled job openings has shrunk, particularly in major public works, said Anirban Basu, Chairman &in construction, thanks to a slowing economy, so hiring has CEO of Sage Policy Group (sagepolicy.com). Basu notedslowed. Residential contractors in particular appear to be that much construction activity is being driven by thelooking for fewer workers.re-emergence of industrial policymaking in America, anSofteningemploymentgrowthhasgivenworkersless economic transformation that has led to programs such asbargaining power, so employers are experiencing some the Inflation Reduction Act, the Chips and Science Act, andmuch-needed relief from the rising trendline of worker the Infrastructure Investment and Jobs Act.wages. Entry-level hourly wage increases came to 3.7% in Manufacturers are receiving billions of dollars in subsidies2024 at Palisins member companies, markedly lower than for large-scale infrastructure projects, computer chip andthe vigorous 8%-10% levels clocked for each of the previous battery manufacturing plants, and data centers, many intwo years. (Historically, such increases have tended to settle support of technological transformation such as the growthin the 2.5% to 3.0% range). 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