As the economy moves into 2025, it does so on a strong footing. Consumer spending and real disposable personal income are both growing at acceptable levels, and productivity, driven by technological innovation, is creating strength in the U.S. economy. Non-residential construction is rising slowly and should begin a stronger growth trend later in 2026.
A major uncertainty facing the U.S. economy and this forecast is the impact of the wide- ranging proposed tariffs and the federal government budget cuts and labor lay-off initiatives being instituted by the Trump Administration. Tariffs could create chaos for supply chains, dislocate manufacturing and sales, increase unemployment, and kick-up inflation.
Concerns regarding the current state of the U.S. economy:
- Inflation: Propelled by high energy prices, logistical issues, and major budget deficits, these factors keep commodity prices high. The current administration has removed drilling, leasing, and other restrictions on the U.S. energy industry which should reduce the rate of inflation.
- Tariffs: Many serious questions exist surrounding the proposed tariffs on China, Canada, and Mexico, the extent to which they are imposed, and their overall impact. The tariffs could also create supply chain disruptions if firms re-align their supply agreements to firms in nations with lower or no tariffs on their U.S. imports. They could be inflationary due to the cost increases caused by the tariffs, or they could have a positive impact on the economy if they increase consumer spending and employment by stimulating exports and employment.
- Federal spending and deficits: Federal spending in fiscal 2025 will be an estimated
$7.4 trillion, an increase of 69 percent over 2019 spending and $2.0 trillion more than anticipated total 2025 federal receipts. The increasing amount of funds required to finance this debt are thus not available to be invested in the U.S. economy.
- Interest rates: Given that inflation continues to be a major issue, and interest rates are linked closely to inflation, U.S. bank prime rate remains elevated and only falling slowly. It is expected that the prime rate will fall to 7.4 percent in 2025.
- Tax cuts: The administration’s proposed tax cuts, if implemented, will increase economic activity enough to raise tax revenues, and if federal spending falls sufficiently, inflation will not rise. Otherwise, the risk that the converse will be true.
U.S. real gross domestic product (GDP) growth will slow in 2025 and 2026 as growth is frustrated by uncertainty regarding the long and short-term impact of the Trump Administration’s policies. The scope of the stated policies of the administration are so sweeping, if only partly implemented, they could have a major impact, either positive or negative, on the U.S. economy.
Key assumptions and issues effecting the U.S. economy:
- Housing starts are currently above 1.35 million units annually and will continue to aid economic growth with starts averaging 1.5 million units through 2030. Starts increasingly favor single-family units (70 percent of total starts) which average 50 percent greater floor area over multi-family units.
- Residential home improvements will be stymied in 2025 as the uncertainty impact of the new federal policies becomes clear. Spending will recover slightly in 2026 before increasing at a moderate rate from 2027 onwards throughout the remaining forecast period. Buoying remodeling expenditures will be households, unwilling to sell their current low interest financed home in a desirable neighborhood, remodeling their existing residences.
- Consumer spending, although growing modestly, is slowing as many consumers’ finances are being stretched by inflation, rising debt levels, and slowing employment growth.
- Real personal disposable income will grow at an inflation adjusted annual rate of 2 percent or greater through 2030, largely driven by moderate growth in skilled and technical worker employment increases and general wage growth. Income growth will endure headwinds resulting from weak employment growth due to automation and a decline in unskilled labor jobs through 2030.
- Non-residential building construction will grow throughout the forecast period, especially for education, transportation facilities, health care, lodgings, and institutional building types.
Factors threatening the U.S. economy are:
- Inflation will continue to be an issue among key commodities for consumers. This will be especially true if government spending is not sufficiently controlled, tariffs do not work as planned, and employment suffers, to name just a few.
- Federal debt will exceed $36 trillion for the U.S. by the end of 2025 and the interest on this debt will be nearly equal to U.S. annual defense spending budget for the same year.
- Slowing employment growth, the result of government lay-offs and slowing domestic production due to tariffs, if not offset by jobs created by firms onshoring, new investments in domestic production, and consumer spending will slow economic growth.
- Reciprocal tariffs, the unknown effects of the imposition of tariffs on foreign imports equal to those imposed on U.S. exports to those same foreign nations.
- Other potential threats to the U.S. economy include a widening war in Ukraine or Middle East, new conflicts in Taiwan, the Persian Gulf, or other areas; a major domestic civil disturbance; another global pandemic; a major trade war threatening prices and logistical trains; a natural disaster requiring emergency aid; or other catastrophe.
This is a summary of the March 2025 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 nwfa.org.