Inflation Headwinds

American paper money. A $100 bill with focus on eyes of Benjamin Franklin. US banknotes close-up. Savings economy and the USA dollar. Banner or headline. Macro
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The U.S. deficit has grown from $22.7 trillion in 2020 to $32.7 trillion in 2023. The money supply has expanded 41 percent (+$6.2 trillion) during the same two-year period as the U.S. Treasury continues to print money to pay for the government’s spending (Treasury does not print dollars literally; instead, it digitally creates funds that are then deposited into individual bank’s accounts). Inflation is a serious headwind for the U.S. economy, and current government policies do not seem poised to significantly deal with it.

There is a 50 percent chance of a recession this fall. Key economic assumptions of this forecast include:

  • A recession will not occur, but a slowing of the economy will result in Q3 2023, with an upturn occurring in the second half of 2024; the U.S. will see moderate growth in 2025 and then slowing growth through 2028.
  • The Federal Reserve likely will slow inflation with monetary policy that will keep prime rate at eight percent in 2023, slowing to five percent in 2028.
  • Consumer spending will continue to grow (consumer spending is 70 percent of U.S. GDP), but at a slow rate and will be commensurate with the overall economic cycle.
  • Business profits and investments will be weak until the latter part of next year, rebound, and remain moderately strong through 2028.
  • Inflation adjusted (real) disposable personal income is rising and will continue to do so through 2028 as the labor market grows, buoyed by growth in professional and skilled occupations.
  • Housing starts are proceeding moderately, despite rising interest rates, rising home prices, affordability issues, and investors buying single-family homes as rental investments.
  • With a few notable exceptions, the majority of financial institutions remain strong, and no signs of stress are anticipated.
  • Existing home sales will fall below five million units in 2023. It is forecasted that they will remain above or near five million units sold annually throughout the forecast period. Existing home sales bode well for residential remodeling as consumers refit their homes prior to selling a home and after buying an existing home.
  • The A.I.A. billings index indicates commercial building and renovation will be negative in the near-term.
  • Non-residential building rehabilitation will begin to see growth in 2024 as corporate profits revive and as firms evaluate requirements for space, workers, and enhanced productivity. Of course, this situation will vary by building type, with healthcare and education buildings moving faster to upgrade their facilities.
  • Non-residential building construction will find similar market dynamics as non-residential building rehabilitation.
  • No states or the federal government will reinstate mitigation policies, slowing or thwarting economic growth.
  • The U.S.-China trade war and the subsequent tariffs on Chinese imports to the U.S. (plus U.S. exports to China) are forecasted to continue at least through 2023 and likely throughout the forecast period.
  • More foreign firms will establish flooring manufacturing operations in the U.S., given domestic production and inventory advantages, tariff avoidance, an expected weak U.S. dollar, and rising labor costs abroad.

There are many downside risks related to this forecast:

  • Federal regulations have and likely will continue to slow economic growth, especially in the energy and related sectors.
  • Continued deficit spending could weaken the U.S. dollar and its position as the reserve currency, which buffers the U.S. economy from severe inflation.
  • Consumers are drawing down savings and credit card debt is at record high levels.
  • The U.S. stock market is expected to remain relatively positive. Should a major market correction occur, it would jeopardize the economy, especially firms, and individuals with retirement savings, endowments, pensions, etc.
  • Sanctions on imports or materials derived from the Hueger camps located in China have caused logistical disruptions of some Chinese imports. However, it is not expected that an expansion of this rule will occur, causing major supply chain issues.
  • It is not expected that the war in Ukraine or any other global war or terrorist threat will occur that threatens the U.S. economic growth.
  • There are not expected to be any significant logistical interruptions during this forecast.

The chart (Fig. 1.1) shows Real Gross Domestic Product (GDP), which represents the inflation-adjusted, constant dollar value of all goods and services produced in the U.S. per year, and the number of total annual housing starts per year. Given that housing and related industries are the second most pervasive in the U.S. (behind automobile production), as housing goes, so does the nation.

The U.S. economy withstood COVID-19 mitigation policies and snapped back in a matter of months. Further, funds provided by federal programs boosted consumer spending while also contributing to the high rate of inflation. Consumers are drawing down savings, and credit card debt is at record levels (re: Figs. 1.3 & 1.4).

Non-residential construction and non-residential replacement are linked closely to corporate pre-tax profits and business investment in structures. As profits rise (re: Fig. 1.6), employment, construction, and investment in structures increases. Given the uncertainty of the current economic and work situation, non-residential investment in structures will not grow until profits have returned and the situation with the economy, and each firm’s particular business segment, becomes clearer (Fig. 1.7).

US dollars chained and locked on white background
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Despite recent strong prior year gains, productivity decreased in 2022 (Fig. 1.7) and inflation, as measured by the Consumer Price Index, rose significantly at the same time and will not abate until 2025, or later if productivity does increase (re: Fig. 1.8).

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

This is a summary of the June 2023 Quarterly Market Monitor Report published by Market Insights LLC. NWFA members have exclusive access to the full report, which provides forecasts and analysis of economic, market, and industry conditions and trends affecting the North American flooring market. The report includes a historical and forecasted volume of dollar sales of total wood flooring (at mill sell price) per metro area and state. Separate reports are available for the United States and for Canada. The availability of the reports on a quarterly basis will provide NWFA members with current data that can help them develop business plans, prioritize inventory, and react to market conditions in a timely manner. NWFA members may download the full report by visiting

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