Economic Unpredictability Has Industry on Edge

The economic news has been fast and furious this spring and more than a few headlines seem to be in conflict with each other.

To make sense of it all, let's review the latest from Fed Chair Jerome Powell, plus industry voices at the American Institute of Architects (AIA), Associated General Contractors (AGC), Associated Builders and Contractors (ABC), Dodge Construction Network, and more. Taken together, they offer a clearer view of the road ahead for U.S. 
design and construction.

On May 29, Fed Chair Powell visited President Trump, who has publicly expressed a desire for Powell to start lowering interest rates again to stimulate the U.S. economy. After their brief meeting, the Fed issued this short statement:

At the President's invitation, Chair Powell met with the President today at the White House to discuss economic developments including for growth, employment, and inflation. Chair Powell did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.

Finally, Chair Powell said that he and his colleagues on the Federal Open Market Committee (FOMC) will set monetary policy, as required by law, to support maximum employment and stable prices and will make those decisions based solely on careful, objective, and non-political analysis.

So, no interest rate cuts are yet on the immediate horizon. Neither is a recession, but June's performance could be the deciding factor.

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At the end of April, the U.S. Bureau of Economic Analysis reported that U.S. GDP had declined 0.3% in the first quarter, the economy's first negative quarter since 2022. If GDP declines again in the second quarter, then the U.S. economy would be said, by definition, to be in a recession. 

Of course, that definition proved inaccurate in 2022, as the post-pandemic economy corrected course. And 2025 has its own unusual variables now that may yet stave off recession again.

In a May 7 press conference, Chair Powell had said that the First Quarter decline in GDP may well have been "reflecting swings in net exports that were likely driven by businesses bringing in more imports ahead of potential tariffs."

With that in mind, the Fed is taking a 'wait and see' approach. "The risks of higher unemployment and higher inflation appear to have risen, and we believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments," he said.

To further reassure the public, Powell added, "My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people.  Despite heightened uncertainty, the economy is still in a solid position. The unemployment rate remains low, and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2 percent longer run objective."

The Fed's last rate cut was in December, but it has declined any further cuts while it waits to evaluate the impact of on-again, off-again trade tariffs that still remain in flux. Said Powell, “It’s not a situation where we can be preemptive, because we actually don’t know what the right responses to the data will be until we see more data."

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More data, of course, continues to roll in from several directions in our industry, and most are conflicting.

On May 15, the Bureau of Labor Statistics (BLS) reported that construction input prices decreased 0.1% in April compared March. Nonresidential construction input prices increased 0.2% for the month.

Overall construction input prices are 0.1% higher than a year ago, while nonresidential construction input prices are 0.2% higher. Prices decreased in all three energy categories in April. “Construction input prices declined in April, but that was largely due to falling energy prices,” said ABC Chief Economist Anirban Basu. “Materials directly affected by tariffs saw sharp price increases. Steel mill product prices rose 5.9%, while copper wire and cable prices increased 5%.

“While recent developments have reduced tariff-related uncertainty, the 25% tax on steel and aluminum imports remains in place, and a sudden resumption in imports from China could cause an increase in shipping prices,” he added.

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Meanwhile, on May 9, the Dodge Construction Network reported that its Dodge Momentum Index (DMI) grew 0.9% in April, boosted by a 3.3% increase in commercial planning during the month.

“Despite an uptick in April, the bulk of the DMI’s growth was driven by a surge in data center planning, while momentum in other nonresidential sectors lagged behind,” said Sarah Martin, Dodge's associate director of forecasting. “Owners and developers are navigating heightened economic and policy uncertainty, which likely bogged down much of this month’s planning activity.” 

Indeed, "uncertainty" is the watchword, as highlighted in our May episode of HPAC On The Air, our separate online segment this month featuring industry economist Richard Branch. (Listen here.) “There will likely be trade and price disruptions in the months to come,” says Branch, now at FreeAgentEconomist.com. “That, along with a payback 
from the first quarter pre-spending, will result in much slower economic growth 
over the next six months.”

Even so, other positive signs have continued to emerge.

In April, the construction industry added 11,000 workers, according to BLS. And that growth came at "a faster clip than other sectors as the industry boosted pay more than other private employers,” said Ken Simonson, chief economist for AGC. “But uncertainty over tariffs and other policy reversals may cause a halt to many projects and employment gains.”

In March, national nonresidential construction spending decreased 0.5%, according to the latest figures from the U.S. Census Bureau. 

“Data center investments are perhaps the only remaining source of industry momentum," said ABC's Basu in early May. “Given unprecedented economic uncertainty, spending is unlikely to rebound in the coming months. While a majority of contractors surveyed in March were still optimistic about their future sales, according to ABC’s Construction Confidence Index, sentiment is likely to falter as the effects of tariffs begin to raise input prices and stall or cancel projects.”

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For their part, design firms are also on edge. The latest Deltek / AIA Architecture Billings Index dipped to 44.1 in March, as more firms reported a decline in billings from the previous month.

Since the ABI first dropped below 50 in October 2022, following the post-pandemic boom, billings have declined in 27 of the last 30 months. Unfortunately, this softness is likely to continue as indicators of future work remain weak. Inquiries into new work declined for the second month in March, while the value of newly signed design contracts fell for the thirteenth consecutive month.

Clients are increasingly nervous about the uncertain economic outlook, and many remain wary of starting new projects at this time. 

However, backlogs at architecture firms remain reasonably healthy at 6.5 months, on average, which means that even though little new work is coming in currently, they still have a decent amount in the pipeline, notes AIA Chief Economist Kermit Baker.

Looking ahead, Fed Chair Powell also said May 7th that U.S. negotiations with key trade partners will help to shape the economic outlook for the rest of the year. He added that the tariffs Trump implemented on April 2nd were “substantially larger than anticipated in the forecasts that I had seen and in our own forecasts. So it seems to me we’re entering a new phase where the administration is beginning talks with a number of our important trading partners and that has the potential to change the picture materially — or not,” Powell said. “It’s going to be very important how that shakes out.”

And in the meantime, our industry and the global economy, will continue to shake, as well.

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