The economy does better when people are optimistic, because consumer spending accounts for a large portion of the nation’s business activity. While consumers remain troubled by the residual effects of inflation in the form of high prices for gas and groceries, they remain in a fairly good mood.
“We look for consumer confidence to move slightly higher in 2025,” says Scott Hoyt, senior director of consumer economics for Moody’s Analytics.
Healthy employment levels will fuel this optimism.
“We look for the unemployment rate to end 2025 at 4.3 percent and 2026 at 4.2 percent,” says Yaros.
This is roughly in line with the 4.1 percent reported toward the end of 2024. Many economists peg an unemployment rate of 3.5 percent to 4.5 percent as the “sweet spot” that balances the dual risks of inflationary wage escalation and economic recession.
If favorable unemployment figures encourage consumer spending, employers should also enjoy relief from the deleterious effects of the past year’s tight labor conditions.
“While many contractors continue to view the lack of skilled labor as their No. 1 challenge, it is not necessarily of the same magnitude as a year ago,” Basu says. “The number of available unskilled job openings has shrunk, particularly in construction, thanks to a slowing economy, so hiring has slowed. Residential contractors, in particular, appear to be looking for fewer workers.”
Softening employment growth has given workers less bargaining power, so employers are experiencing some much-needed relief from the rising trendline of worker wages. Entry-level hourly wage increases came to 3.7 percent in 2024 at Palisin’s member companies, markedly lower than the vigorous 8 to 10 percent levels clocked for the previous two years. Historically, such increases have settled in the 2.5 to 3 percent range.
National figures concur.
“The Employment Cost Index (ECI) is slowing,” says Hoyt, referring to a standard measure of average worker wages. “We are forecasting 2.8 percent growth in 2025, compared to 3.9 percent in 2024 and 4.5 percent in 2023.”
Despite the ongoing de-escalation in the ECI, Hoyt says it remains healthy enough to support consumer spending, as does the expected increase in national total personal income level, an essential driver of business activity. Like the ECI, it is expected to follow a familiar 2025 trendline: a healthy increase despite de-escalation.
“Mainly because of slower job growth, we have the increase in wage and salary income slowing to 4.5 percent in 2025, compared to our expectation of 4.8 percent for 2024 and 5.9 percent for 2023,” Hoyt says.
Employers are in no hurry to trim their employee rosters.
“Employers want to maintain their ability to jump on the growth side once the economy rebounds a little,” Hoyt says. “So, employment levels have held fairly steady.”
Supply chains
Construction companies will benefit from a national commitment to reposition supply chains in the U.S.
“Logistical issues are persuading many CEOs to place production closer to final consumers,” Basu says. “There is also a trend toward favoring nations that provide significant protection for intellectual property.”
Indeed, many contractors are concerned about the re-emergence of supply chain issues.
“It’s taking longer to ship equipment around the world, partly because of issues in the Red Sea,” Basu says. “Cargo is being diverted and having to travel much longer distances in many instances, especially cargo from Asia. That leads to increases in the cost of transportation and insurance, which squeezes margins for contractors.”
Palisin confirms that supply chain disruptions are not a thing of the past.
“We are seeing shortages around semiconductor chips and some other technological products, as well as chemicals, equipment assemblies and metal parts,” he says. “That’s causing production delays and late deliveries.”
There are several causes for the problem. Over the past year, the nation has lacked sufficient skilled workers to meet production demands. In an environment of high interest rates and slowing growth, companies did not invest as much as required in new facilities.
While the U.S. is committed to reshoring production, increasing domestic manufacturing and delivery systems will take time.
“As for the semiconductor situation specifically, there’s this huge demand coming up against a shortfall in global supply,” Palisin says. “We are not going to turn things around right away.”
The road ahead
Despite optimism on the part of businesses and consumers, economists eye some dark clouds on the horizon. In the opening months of 2025, they advise construction companies and manufacturers to keep a close watch on the following areas for any deleterious changes:
• Interest rates: “Going forward, the major concern for businesses will be the pace of interest rate cuts and where they will end up,” Yaros says.
• Inflation: “If the consumer price index returns to positive territory, that could throw a monkey wrench into many business plans,” Conerly says.
• Tariffs: “Tariffs amount to price increases for our members who have to buy materials from abroad,” Palisin says.
• Geopolitics: “An increasing level of turmoil around the world can [impact] supply chains, [disrupting] the economy,” Conerly says.
As concerning as these risks are, economists anticipate a relatively benign operating environment in 2025.
“The U.S. economy has been remarkably resilient despite all the hits it’s taken over the past few years,” Yaros says. “We don’t anticipate a recession, as the Federal Reserve will be dialing back the restrictiveness of monetary policy, and there are no glaring imbalances in the economy.”
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Phillip M. Perry is an award-winning journalist who is published widely in the fields of business management, workplace psychology and employment law.