In July 2025, Windham Brannon released a whitepaper with Construction Industry CPAs and Consultants (CICPAC) covering key highlights of the construction industry’s economic outlook for 2025. We’ve provided a summary of those key highlights below, including GDP trends, tariff impacts, labor market dynamics and construction sector performance.
Macroeconomic Trends
Because the U.S. economy experienced notable volatility in early 2025, GDP dropped in Q1 due to a surge in imports ahead of anticipated tariff hikes yet rebounded in Q2 with a growth rate of 2.4 percent. Projections for Q3 are less optimistic, with growth expected to slow to 1.3 percent or lower. Inflation now stands at 2.7 percent, with expectations to rise between 3 and 3.5 percent by the end of the year (such expectations are rooted in concern over tariff policy). In response, the Federal Reserve is expected to implement interest rate cuts likely in September and December.
Construction Sector Quick Insights
- Labor shortages are still a challenge in the industry (even though there are 7.7 million job openings nationwide) due to skill mismatches, aging demographics and increasing retirements, which contribute to the difficulty in filling roles.
- Tariffs on steel and aluminum have doubled to 50 percent, with copper expected to follow suit, which have placed material costs under pressure. Such price instability causes delays in projects and complicates supply chain logistics.
- Residential construction has declined by 6.7 percent year-over-year, with high inventory levels and slow demand prompting builders to offer significant discounts amid elevated interest rates. Meanwhile, non-residential construction spending remains near record highs but is beginning to soften.
- The construction sector is poised for renewed growth thanks to the One Big Beautiful Bill Act (OBBB), which provides 100 percent bonus depreciation for qualifying projects initiated before 2029.
Regional Construction Potential
Some metropolitan statistical areas (MSAs) are outperforming others, specifically Dallas-Fort Worth, Houston and New York showing year-over-year growth in construction GDP. The Construction Potential Index evaluates 105 MSAs, offering valuable insights into regional opportunities and investment potential across the country.
Raw Materials
Tariff and supply concerns continue to drive up the prices of copper, and tariff concerns are still the most pressing concern amongst many purchasing managers. Global demand is weaker overall, with 17 countries having manufacturing sectors in contraction. While many companies saw early inbounding of tariff-free materials, those inventories are expected to deplete, and tariff impacts will be felt in Q3 and Q4.
Banking and Finance
The Federal Reserve has not reduced interest rates so far in 2025, but rate cuts of a quarter point each could come in September and again December of 2025. Credit conditions are tightening, particularly for small and medium-sized enterprises, and banks are navigating uncertainty because of tariff pressures. However, the anticipated stimulus from the OBBB may help ease lending standards in the latter half of the year, potentially improving access to financing for construction projects.
Transportation and Supply Chain
While there are signs of stabilization, the transportation and supply chain sectors remain vulnerable to policy shifts and global market dynamics. Freight demand has shown slight improvement but remains below 2024 levels. Ongoing uncertainty related to tariffs continues to disrupt supply chains and reorder activity, adding complexity to logistics planning. Tariff hikes, especially on metals and electronics, have also triggered a wave of preemptive stockpiling, followed by sharp pullbacks in shipping activity. This boom-and-bust cycle strains logistics providers, who struggle to forecast demand and optimize capacity. Port congestion has eased compared to peak pandemic levels, but inland distribution networks are facing bottlenecks due to labor shortages and equipment delays. Supply chain managers have increasingly turned to nearshoring and reshoring strategies to mitigate geopolitical risks and reduce exposure to volatile international shipping costs. However, these transitions are slow-moving and capital-intensive, requiring long-term investment in domestic infrastructure and workforce development.
Outlook
The U.S. economic landscape is changing rapidly, and the OBBB is expected to increase household income, thereby incentivizing nonresidential industrial construction through 100 percent bonus depreciation. Also, the announcement of key trade details just ahead of the August 1 deadline means supply chain constraints could ease and gradually boost global economic activity. However, a downturn is projected to persist in residential construction for the next two quarters before stabilizing around early 2026. Even though multifamily and custom home construction were lively in May and June, overall demand remains soft, leading to falling material prices due to rising inventories. On the other hand, nonresidential construction remains relatively strong amidst a slowdown in growth. More pressingly, an anticipated influx of foreign direct investment (estimated between $5 trillion and $8 trillion) could target industrial and energy projects due to changes under the OBBB. Expect these to be front-loaded, with many projects needing to begin by 2026 to meet the 2030 completion deadline. The anticipated surge brings concern over labor availability, materials and other resources, especially since recent industrial construction has quadrupled compared to pre-pandemic levels.
To learn more, download the full article or reach out to Bobby Vercoe and Mary Beth Saylor.
