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Tariff actions not yet reflected in Feb PPI Inputs or PPI Final Demand index. Still early. Also remember, PPI does not include imports or tariffs on imports. When we do see movement in the PPI, it reflects domestic pricing decisions following on tariffs.
PPI Excludes Imports/Tariffs. The 2018 steel tariffs of +25% applied on imported steel. However the PPI showed that the cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased 18% in 2018, after the steel tariffs were imposed.
While tariffs may affect only 10% of products used in the industry, the PPI shows us the domestic producers reaction to tariffs, which gets applied to the other 90%. Tariffs impacted pricing decisions on all domestically produced products, not just the imported products. Consumers pay the price.
Impacts on Construction Inflation and Spending (guesstimates).
2021 inflation was 8%-14%. 2022 it was 12%-17%. Could 2025 repeat 2022? Yes. Will it? ??? I guess it hits 6%-10%.
I’m guessing some projects contributing to 2025 spending will be canceled. So maybe spending drops 5% from here, to zero growth. Average construction spending growth is in the range 6% to 10%. 2025 and 2026 were both forecast 5% to 7%. No doubt some projects will be canceled or mothballed. So next 3 yrs spending gets reduced, and cost gets increased.
Yeears ago, when I was a construction cost estimator, major client would run numbers on a proposed new building project. If it couldn’t balance an ROI in 7 yrs, project would not move forward. As cost to build increases, it becomes harder to hit ROI. This supports that some projects may be canceled or postponed.
Data Center (SAAR) spending, steadily climbing, is now up 20% vs avg2024. By Apr (data), the rate of spending will be up 33%. Data Center spending increased 45% in 2023 and 56% in 2024. Forecast for 2025 +40%.
Virginia has the largest concentration of Data Centers in the U.S. Virginia is projecting energy shortages due to the extreme demand DCs put on power grids. If you don’t build out the energy grid, the data centers put too great a demand on the current grid.
A 10%/yr reduction in forecast new Data Center starts in 2025 and 2026 would result in reduced Data Center construction spending by -3% in 2025, -7% in 2026, -7% in 2027 and -3% in 2028.
A 10%/yr reduction in forecast new Data Center starts in 2025 and 2026, combined with a 10% cancelation of 2024 starts, would result in reduced Data Center construction spending by -8% in 2025, -10% in 2026, -8% in 2027 and -3% in 2028.
My guess is if the people of Greenland take a vote to Join the United States, it would be 99-1 No.
The Fed Chair just said what every credible economist, every economics textbook, and every empirical study shows: Tariffs reduce output and raise prices. – Justin Wolfers, Econ professor at Michigan, Senior fellow, Brookings and PIIE.
Whenever we get an unusually large increase in new construction starts and spending, the tapering off of those projects leads to a decline on the tail end. Mnfg new starts peaked in 2022-2023. We are entering the period of the manufacturing construction spending taper. Mnfg spending has fallen slightly each of the last 5 months.
Microsoft has announced a pullback in spending on new AI chip factories. Reduced demand negates need for new factories, kills expansion plans, lowers new construction forecast, decreases jobs growth in construction. Mothball partially built factory, not only expensive for owner, but also negative impact to contractor’s forecast revenues.
Whenever there’s a devastating natural disaster, causing destruction to homes, property and infrastructure, the supply of contractors, laborers and materials stays the same while demand skyrockets from victims trying to rebuild. Contractors generally pick more profitable projects over less lucrative ones.
In the Construction Analytics Outlook Feb 2025 report I said, “Don’t be surprised if 2025 construction jobs growth slows a bit. Jobs are slightly ahead of volume growth, particularly in the Non-building Infrastructure sector.”
Construction gained 19k (+0.2%) jobs in Feb, BUT total hours worked declined 0.3%. Tot jobs have increased but Hrs worked has gone down the last 5 months. We’ve posted minor jobs gains in both Jan and Feb, and yet unemployment has gone up from 5.2% in Dec to 7.2% in Feb.