Week of March 3
What If…?
I spent much of my week asking that question. Any economist worth their weight produces a forecast … the more numerical that forecast, the better. But what really energizes me is probing the pressure points in that forecast … how could it under or over perform? And when I meet with clients to discuss the economy, the “what if” question is usually first and foremost on their mind.
I’m sure what’s keeping most decision makers up at night are the tariffs. We saw tariffs on Canada and Mexico come in…and then exemptions, confusion, and ultimately a partial delay come in a couple of days later. So your strategic planning needs to consider a much broader array of scenarios. This week I spent some time thinking about how construction spending could be impacted. There are some sectors deeply exposed.
If you’re asking yourself that same “what if” question, we should chat.
Important Data Points From The Past Week
U.S. Construction Spending
Construction spending started the year on a down note, total spending fell 0.2% from December based on a 0.5% downturn in residential activity. Nonresidential spending was up 0.1%. On a year-over-year basis total construction spending was up 3.3% with residential up 3.2% and nonresidential spending 3.4% higher than January 2024.
On the residential side, single family showed some strength while multifamily and residential improvements slipped. For nonresidential construction spending, most of the gain was in infrastructure, but data centers, lodging, and healthcare also did well.
Where do we go from here? Even before tariffs, construction spending was slated to slow this year – my forecast calls for a 4.7% increase in total spending after the 6.6% growth in 2024 (click here for the forecast table). Much of this easing is due to the pullback we saw in manufacturing starts over the last year finally working its way into the spending series. It’s doubtful that any other category will be able to step into the breach and support significant growth. Data centers should do well, but they are about 10% of manufacturing spending. Any tariffs on Canada and Mexico will not only slow down construction jobs underway but will also further constrain starts.
The question then is how do tariffs impact construction spending? I spent the week running some simulations and pouring through the spending data and if the tariffs really kick in it could remove close to $40 billion in construction spending over the remainder of the year. Considering total construction spending tops $2 trillion annually that’s not a lot – although it does reduce the 2025 growth rate to just under 3%. Remember though, that 2025 construction spending is mostly due to Dodge starts in 2024 … so a good chunk of the 2025 spending figures are jobs already well underway. The real impact on spending will come later this year and especially into 2026.
U.S. Employment Report
The U.S. labor market added 155K new jobs in February. Not a terrible number, but it was slightly below what I was expecting for the month. The good news is that hiring in the private sector was broad based and local hiring rose by 20K. Not surprisingly, 10K federal jobs were cut … that number is likely to grow larger in the months to come.
Construction hiring posted a decent gain of 19K – a nice rebound after last month’s weak showing and above the recent average of 15K new jobs per month. Most of the gains were in specialty trades and infrastructure.
Construction spending is slated to slow and it won’t be long before hiring follows. Construction employment rose by 2.5% in 2024, and I think that jobs will only increase by 1% this year.
Canadian Employment Report
Canada added 1.1K jobs during the month, but from a sector perspective it was all over the map, with the retail sector adding 27K jobs and on the other end of the spectrum professional services shedding 33K. The unemployment rate remained steady at 6.6%.
Canadian hiring had been steady over the past few months, but it would appear as though the uncertainty surrounding tariffs are impacting hiring decisions. I would expect that hiring will continue to move sideways until there’s some resolution on that front … if there is resolution on that front.
What I’ll Be Watching This Week
It’s inflation week in the U.S. with PPI and CPI data coming out along with a reading on consumer sentiment. In Canada, the Bank of Canada will be meeting to discuss interest rates and new building permit data will be released.
What I Watched Last Week
I grew up on comics. I was, and still am, a Marvel guy. No DC comics in this house. The What If series of comics were translated into a TV series in 2021 and ponder questions like what if Peggy Carter became the first super soldier and what if Howard the Duck got married. Yeah, you need to be a special kind of nerd to enjoy this, but I’m assuming if you have read this far, you and I are pretty aligned.
How Can I Help?
I’m taking on a limited number of clients to help with bespoke analysis of the economy and construction and what it means for your company. I’m also available if you’re in need of a speaker at an event or someone to come talk to leadership groups on the state of the economy, demographics, real estate, and construction.
If you want to discuss either option, sign up for a spot on my calendar.
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