MARKET UPDATE BULLETIN Tariffs & Economic Outlook February 2025
Lead Author: David Hamilton, Senior Vice President, Construction Procurement Solutions
Introduction The construction industry is at an interesting inflection point. Tariffs and fluctuating energy prices are beginning to reshape how projects are planned and executed. While some developers are pausing to reconsider projects amid escalating costs, others see opportunity in the shifting landscape. Recent tariff measures have driven some major corporations to invest in U.S.-based manufacturing facilities, creating domestic jobs and strengthening the local economies. This shift, while potentially positive in the long-term, introduces short-term complexities, as typical Q1 price increases now overlap with tariff-driven cost surges and volatility in energy markets. These converging factors demand strategic foresight and flexible approaches to keep projects on track and budgets in check. The construction industry continues to demonstrate its resilience and capacity to adapt.
Economic Outlook •
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Despite ongoing uncertainty surrounding tariffs, they have already driven substantial shifts in corporate strategies, prompting companies to reassess supply chain, sourcing decisions, and market expansion plans. The true extent of the impact, particularly from reciprocal tariffs, will be revealed after the April 2nd deadline implemented by President Trump. Reshoring efforts will not only bolster the domestic economy but are expected to gradually ease some supply chain bottlenecks over the coming year. Fuel price volatility continues to impact logistics and raw material costs, increasing the pricing challenges that tariffs have introduced. Despite these complexities, construction spending remains stable across key sectors. Developers and contractors are adopting proactive strategies to navigate cost fluctuations and supply chain disruptions.
Manufacturer Viewpoints •
The impact of tariffs on manufacturers varies. While some suppliers have seen minimal disruption, others face sharply rising costs and supply chain pressures that affect the broader industry.
Manufacturer Viewpoints (cont’d) •
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Material Cost Increases: Steel and aluminum remain key pressure points. Some manufacturers report price hikes over 16%, especially for components sourced from China. Even modest increases raise concerns about long-term impacts on commodity pricing and procurement strategies. Sourcing and Supply Chain Adjustments: Many manufacturers are turning to domestic suppliers and multi-sourcing strategies. While major lead time delays have been rare, certain product lines—like specialized HVAC systems—have seen minor delays of 1-2 weeks. Logistics and Freight Challenges: Freight costs are fluctuating. While some suppliers report stability, others face rising logistics expenses driven by shipping dynamics and tariff-related pressures. Many expect continued volatility throughout the year. Looking Ahead: Most manufacturers predict moderate price increases (1-5%) over the next 12 months, though some foresee sharper hikes in specialized products. Strong collaboration with procurement partners, such as Construction Procurement Solutions, remains key to minimizing client impacts through strategic planning and early purchasing.