Market Matters – Slow Growth During Economic Uncertainty

The overall U.S. economy is expected to grow slowly during this early period of economic uncertainty in 2025 and 2026 and then grow at a moderate rate thereafter. Consumer spending will continue to drive the economy, growing throughout the forecast period. This economic forecast is projecting real gross domestic product (GDP) growth in 2025 to be 1.3 percent, consumer spending rising 2.1 percent, and inflation at 3.2 percent.

Key assumptions underlying this forecast:

• Strong consumer demand continues to support economic activity, though uncertainties around tariffs and government policies will slow growth in the near term.
• New home construction in 2025 will continue to be constrained by affordability issues, mainly affecting younger buyers. As consumer income and employment rise in 2026 and beyond, housing starts will rise above 1.5 million units annually. Existing home sales will face moderate challenges in 2025 from the same affordability issues as new home construction. However, in 2026, like new starts, existing home sales will grow to about 5 million units annually and then higher.
• Real disposable personal income will grow moderately in 2025, buoyed by growth in professional and skilled occupations and then accelerate as employment rises due to investment in domestic production plants coming on-line.
• Non-residential construction will experience slow growth in 2025 through 2026, before rising strongly in 2027 and beyond. The strongest sectors will be education, institutional (public safety and transport terminals), and lodgings.
• More foreign firms will establish flooring manufacturing operations in the U.S. given logistical advantages, tariff avoidance, and rising labor costs abroad. Tariffs on U.S. imports will garner additional government revenue which will somewhat offset federal deficit spending, slowing the growth of U.S. inflation and U.S. dollar exchange value erosion.
• It is not expected that the war in Ukraine or the Middle East, or any other global war or terrorist threat, will occur that threatens the U.S. economic growth. There is not expected to be any significant logistical interruptions during the course of this forecast.

Significant downside risks related to this forecast include:

• Tariffs on U.S. imports could raise prices and inflation beyond forecasted levels, slowing consumer spending. The tariffs could also disrupt trade relationships and create logistical interruptions.
• Deficit spending, if continuing, will weaken the U.S. dollar. Continued deficits could also accelerate inflation and interest rates severely threatening U.S. economic growth.
• 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. A risk to this analysis is a that a major downturn in the market could trigger a major decline in the U.S. economy and national wealth.

Near-term employment growth will slow as firms, faced with economic uncertainty, hold back on new hires until the situation clarifies itself (Figure 1). Given the shift of the

U.S. economy to more technical occupations and more small businesses, personal income continues to rise supporting consumer spending.

U.S. productivity has been exhibiting gains which offset the continuing annual U.S. budget deficits. With the current budget deficit averaging $1.75 trillion and the total gross federal debt currently outstanding in 2025 at $37.3 trillion, continued productivity gains from automation, artificial intelligence, and general productivity enhancements will be required to keep the growing federal debt manageable.

A major obstacle to U.S. economic growth is the current high bank prime interest rate. High interest rates are a function of high inflation and the large annual federal budget deficit. As inflation cools, the prime rate will fall.

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

This is a summary of the June 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.