Issue 51 – First Quarter 2025
Like many other sectors, the construction industry has seen its outlook completely upended by volatile trade policy. The White House has made more than 50 changes to trade policy in less than four months since inauguration day. While recent developments, like the 90-day reduction in tariffs on China, have provided some clarity, contractors will continue to grapple with the effects of higher import taxes for the foreseeable future. That, in conjunction with the prospect of higher for longer interest rates, suggests that the construction industry may struggle to maintain momentum throughout the remainder of 2025.
The Good
Manufacturing Construction
Manufacturing-related construction spending has flatlined since the middle of 2024 but remains extraordinarily elevated, up 197% over the past four years. Tariffs and broader economic uncertainty may reduce manufacturing investment (or slow its rise) in the short term. However, the volume of megaprojects still underway will continue to bolster construction spending in this segment throughout 2025.
The Strictly Okay
Healthcare Construction
Construction spending in the healthcare segment continues to hover within a narrow range, as has been the case since early 2024. While public healthcare construction spending has performed well over the past year, private sector investment is down 5.2%. Despite this decline, healthcare is a noncyclical segment that is unlikely to be meaningfully affected by broader economic dynamics.
The Bad
Commercial Construction
Commercial construction continues to struggle. High interest rates have weighed down many traditional retail sectors, and the increased prevalence of e-commerce hasn’t helped. While the rising popularity of online shopping triggered a boom in warehouse construction, which now accounts for about half of all commercial construction activity, that subsegment has also stalled; construction spending on warehouses is down about 27% since reaching an all-time high two years ago.
The Ugly
Interest Rates
At the start of 2025, forecasters anticipated several rate cuts throughout the year. Those forecasts have crumbled under the weight of tariffs and elevated economic uncertainty, and now most forecasters expect one or fewer rate cuts by the end of the year. While some segments, like data centers, manufacturing, and healthcare, may retain momentum through this period of high borrowing costs, many of the more cyclical categories will continue to struggle until borrowing costs subside.
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