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Immigration Policy Impacts on Construction Introduction A cornerstone of the recent presidential election was to reduce illegal immigration. There are many issues, political and ethical, pro and con, that arise from that policy. For this article, let’s put those concerns aside and focus only on the impact these policies imply for labor market conditions facing the construction industry. Construction Worker Shortfall The construction industry is amid an ongoing labor shortage. The shortfall challenges project timelines, budgets, overall efficiency, and the level of overall construction activity. Tight supply becomes more acute during May through September, when the building season is at its peak. Last year, during these months unemployment in the construction industry ran 50 basis points lower than national unemployment (3.6% construction versus 4.1% national). Adequate supplies of skilled tradesmen are among the scarcest. This includes electricians, plumbers and carpenters. While these areas are most scarce, the construction industry is multi-skilled dependent. Lacking adequate supply of labor in one area, even the least skilled, can holdup an entire construction project. Because undocumented workers account for a large portion of the workforce in some lesser skilled trades, immigration policies hold the potential of broadening the shortage of construction workers to include the so-called “unskilled.”

Sweeping Tariffs Add to Inflation, Disrupt Supply Lines, Weaken GDP, and the Job Market. Overview The U.S. economy’s strength is waning. Even prior to the tariff announcements, evidence suggested that the economy was drifting to a slower growth path. Job growth, a principal source of the economy’s strength over the past few years, has slowed. During the first quarter, an average of 174,000 net new jobs were created monthly - nearly 100,000 lower from a year prior. Other data suggests an easing in economic growth. Uncertainty is rising among consumers and businesses with many struggling to keep up with inflation. Defaults on credit cards, student loans, and mortgages are rising. This all paints a picture of a slowdown. Tariffs hold significant adverse impact on near-term economic growth. These policy initiatives arguably hold the potential for heightened longer-term growth. For now, let’s only focus on near-term impacts and how they relate to the prospects of an economic slowdown. For this analysis, while these tariffs could be negotiated down, the public announcements are taken at face value. Understanding the Administration’s Rationale According to the Administration, the U.S. industry has been competing for years on an unfair playing field that's "tilted" against domestic manufacturers in the U.S. market and abroad. They indicate the "tilted playing field" is responsible for the large $1.2 trillion U.S. trade deficit, the decay in the number of manufacturing jobs, and manufacturing plant shutdowns. This mantra has been around for quite some time and was widely talked about in the 1970’s as Japan’s manufacturers snatched higher market shares to the detriment of domestic producers. Back then, many democrats were singing the song of protectionism and local content laws for the protection of automotive industry. The Administration argues that unfair mercantilist policies enacted by our trading partners are why domestic manufacturers have ceded market share in the U.S. to foreign competitors. Large U.S. trade deficits are evidence of this inequity. Unfair trading partner policies include: Protective tariffs that insulate their domestic industry from the rigors of competition with U.S. products. Subsidies and favorable tax policies that enhance their industry’s competitiveness. Collaborative research that can accelerate product and manufacturing efficiencies which is outlawed in the U.S. by anti-trust laws. Value added taxes that can dramatically raise the cost of U.S. product in the local marketplace. Customs processes that slow down the entry and cost of U.S. products. Currency manipulation that can lead to artificial cost advantages of their exports and raise the price of U.S.-made products in the local market. The Administration argues that the United States has tried to address these issues over the years with its trading partners - to no avail. Given the failure of negotiation, the Administration has embarked on a new tariff regime levied against nearly all countries and covering most goods. Another Take on Trade Deficits These trade inequities exist among some of our trading partners and have contributed to the burgeoning trade deficit. But there are other reasons for our large deficits and erosion of our industrial base. For example, in some instances, our trading partners hold large cost advantages over U.S.-made products – even without the distortions in free trade cited by the Administration. Countries characterized by cheap labor, for example, will probably enjoy cost advantage for products that require a lot of labor to produce. At the end of the day, lower production costs and higher profitability are also a principal reason for the large trade deficit and the maladies that are associated with it. Being the world’s reserve currency also contributes to the trade deficit. While the U.S. has a large trade deficit, called the current account, it also has a huge surplus in the flow of finances, called the capital account. These balances nearly offset each other. When they don’t, the value of the U.S. dollar changes until they are brought back into balance. As a financial safe haven, the U.S. attracts demand for its financial assets – boosting the value of the dollar. This makes exports costlier to buy overseas and imports cheaper - which widens the trade deficit. Economists refer to this scenario as the “Triffin Dilemma." Our very large Federal deficits are linked to the large trade deficits. When we spend more in federal dollars than we take in, we borrow. U.S. debt is so attractive from a risk point of view, it is purchased – by Americans and foreigners. Foreign demand adds to the current account – strengthening the dollar and worsening the trade deficit. How the New Tariff Rates Are Calculated The United States Trade Representative (USTR) stated that it is virtually impossible to review each countries trade practices for every product imported or exported. As such, the USTR embarked on an easier, more convenient way to measure the degree of imbalance among its trading partners. At the crux of the calculation is the size of the trade deficit. It is “the” measure used to determine degree to which a trading partner has engaged in unfair practices. Consider the following steps to calculate the tariff applied to a specific country: A trade deficit is calculated for each country which is the value of U.S. exports minus the value of U.S. imports. The value of the country’s exports to the U.S. is divided by the total deficit which yields a percentage. That percentage is considered the trading partners’ penalty imposed on U.S. products either by tariffs or non-tariff barriers. According to the formula, if everything was fair, there would be no trade deficit. To the extent that there is a deficit, that percentage of net exports is the USTR’s estimate of tariff and non-tariff barriers levied against U.S. manufacturers. (In the preceding table, this is the calculated “Tariffs Charged to the U.S.A.”) To be “fair,” the Administration cuts the estimate of “Tariffs Charged to the U.S.A." in half. That is the tariff placed on all products from that country entering the United States market. (In the preceding table, this is the “U.S.A. Discounted Reciprocal Tariff" rate.) For the countries in which the U.S. had a trade surplus, this formula didn’t work as planned, and a 10% tariff was imposed – for good measure. Well, the USTR is correct. It is virtually impossible to review each country’s trade practices for every product imported or exported. However, their calculations for tariffs levied against 90 countries leaves a lot to be desired as they do not remotely reflect potential inequities in trade with each of our partners. The Economic Impacts from the New U.S. Tariffs While these new tariffs may be part of a negotiating strategy, for the purpose of identifying the threat they pose to the economy, let’s treat them as "at face value.". Any retrenchment in the announced tariffs would brighten the economic outlook. Likewise, trading partner retaliation aimed at U.S. exports would darken the economic outlook. Inflation Impacts: As a result of the tariff, the cost of bringing an imported product to market will increase by the size of the tariff. Some of that cost increase will be passed on directly, dollar-for-dollar by the importer in the form of higher prices. In other instances, the importer may partially or fully absorb the added cost associated with the tariff – limiting the price increase to the detriment of profits. The 15 largest trade deficit trading partners account for the entirety of the total U.S. trade deficit. The United States enjoys a neutral or trade surplus with the remaining nations. Assuming a full pass through of the tariffs onto consumers, it yields an increase in U.S. inflation from roughly 3% currently to as high as 5.6%. Depending on the assumptions made regarding the absorption of costs – inflation increases between half a percentage point (raising rates from 3.0% to 3.5%) to two and a half percentage points (with rates increased to 5.6%). This calculation does not include the likelihood that domestic manufacturers will raise prices as the tariffs provide shelter to increase prices more aggressively without sacrificing its competitive positioning. Such a phenomenon is likely and will add further to inflation. GDP Growth & Employment Impacts: GDP will be adversely impacted by higher prices. Higher prices will steal strength from consumers when they are already struggling. The tariffs could reduce economic growth by at least 160 basis points – enough to push the economy into a retreat this year. By the end of 2025, this could translate into a job market reduction by 1.0 to 1.6 million jobs. Trading Partner Retaliation Impacts: The foregoing estimates do not include the adverse impact associated with trading partner retaliation. It is likely that the European Union will eventually respond. Thus far, while Canada has imposed qualified tariffs specifically on U.S. automotive trade, China is the only country that has responded with broad tariffs. The China tariffs alone could reduce U.S exports by $50-$100 billion and cost at least 100,000 jobs.. Final Note The size of the trade deficit is a bit more complicated than an uneven playing field as postured by the Administration. Let’s be clear, do not dismiss the fairness issue. Give credit to the Administration for recognizing and addressing it. Arguably, the tariff tact is not a good approach and will lead to U.S. and global economic hardship as well as damage our political relations worldwide. There are more thoughtful and comprehensive approaches that might better to address the trade deficit and its maladies. At face value, the tariffs hurt the U.S. and global economy. The preliminary estimates in the report are rough. However, they serve a purpose in putting the economy’s current story into perspective. Given the economy’s gradual ceding of strength that has materialized since the beginning of the year, the new round of tariffs will add significantly to inflation, lead to significant job loss, and push real GDP growth into negative territory. The temptation is to say this will all result in recession. It won’t. It’s worse. This malady of ills, high inflation, and rising unemployment, is stagflation. At the beginning of the year, I expected a mild form of stagflation. With the tariffs, it is likely to be much more severe. Frankly, the tariff calculations levied by the Administration are so remedial I suspect they only serve as a starting point to re-open negotiations for better terms of trade with each of our trading partners. In other words, these tariff announcements may be just the first step in “the art of the deal.” To date, several countries have reportedly begun negotiations with the U.S. on their trade policies. The potential of a time extension of the effective implementation date of tariffs – adds time for more countries to step forward, negotiate, and potentially avoid tariffs. While the focus of this report is assessing the impact of tariffs at face value on the economy - the "art of the deal" may be at work. Every negotiated retreat from the proposed tariff levels, adds one ray of light to a dark near-term outlook. About The Sullivan Report The Sullivan Report delivers subscription-based economic forecasts and market updates tailored to the cement, concrete, construction, and aggregates industries. Its flagship publication, the Cement Outlook, is released three times a year and features 5-year forecast projections, expert analysis, and actionable insights to support informed decision-making and long-term strategic planning amid an evolving economic landscape. Guided by renowned economist Ed Sullivan, The Sullivan Report also offers keynote presentations and customized forecasting services for organizations and regions seeking deeper, data-driven market intelligence. For more information, message us here, visit TheSullivanReport.com, or email us at info@thesullivanreport.com.

Economic Forecast U.S. Construction & Cement Outlook Introduction The Fall Forecast reflects a cooling of consumer spending, an easing in labor market growth, and the potential of an accelerated monetary policy at a time when tariff-driven inflation cannot be discounted. These concerns are compounded by the potential inflationary and growth effects of aggressive immigration policy. Combined, these factors heighten uncertainty for businesses and consumers, casting a cloud over the United States economic outlook. In the near term, the conditions influencing construction remain largely unchanged since our Summer 2025 Forecast. Despite recent reductions in the federal funds interest rate by the Federal Reserve, borrowing costs remain at a level high enough to choke off any meaningful recovery in the residential or nonresidential sectors. Public infrastructure programs continue to see their potency erode under high-sustained, construction-related inflation. While data center and onshoring activities remain areas of strength, these sectors represent a small, albeit growing, sector of the overall construction market. They do not represent enough weight to offset the broader weakness of the nonresidential construction market. These collective dynamics point to another significant decline in cement, concrete, and related industries for 2025 – with adverse conditions that are not expected to improve significantly until the second half of 2026. Only modest year-over-year declines are expected during the first half of 2026 not because things are improving, but because they are measured against weak 2025 volumes.

New Forecast Release Geopolitical Economic Impact on Construction, Cement and Concrete T he US cement market has been in a decline for three consecutive years. This translates into more than a 10 million metric ton decline since 2022. The volume loss has pushed clinker utilization rates lower, reduced reliance on imports, and prompted a moderation in cement and concrete pricing. The principal reasons for this retreat have been sustained high interest rates and inflation’s erosion in the strength of public spending programs. These dual adverse impacts have constrained private and public spending. These forces have been recently supplemented by a slowdown in job creation. While some regional markets have been lifted by vibrant data center and other meg-project activity, these projects have not been enough on a national basis to offset the combined weakness in the construction market brought on by high interest rates, inflation, and adverse net operating conditions. The Iran conflict introduces new uncertainty into the 2026 outlook. For a construction outlook already dependent on declining long-term rates, the risks are significant. At this time, no one knows the scope of the conflict and its resulting impact on interest rates, inflation, and economic activity. To this end, we offer three scenarios that differ depending on the length of the conflict and blockage of shipping through the Strait of Hormuz. In each scenario, the conflict in Iran heightens the probability inflation and overall economic conditions will worsen. The Federal Reserve will likely adopt a wait-and-see approach toward future rate cuts. No improvement in interest rates or inflation is expected anytime soon. The conditions necessary to bring about a recovery in construction activity will be delayed by the Iran conflict. A construction recovery that was expected to begin in the second half of the year, now seems less likely. The potential of a fourth year of decline in cement consumption is now on the table for consideration.

How the Iran conflict reshapes inflation, interest rates, and construction recovery Geopolitical Economic Impact on Construction, Cement and Concrete All forecasts contain risk. Risks can originate from the data used, the process of calculations, the assumptions, or a combination of each element. Indeed, an infinite number of alternative scenarios to the Baseline exist. Each scenario can emerge even small changes in assumptions. While forecast risks were high entering 2026, they have been elevated by the Iran conflict. Prior to the conflict risks centered on assessments regarding underlying strength of the economy and the headwinds that face the near-term economy. Those assessments included: The strength and resiliency of consumer spending. The rate of improvement in inflation in light of administration policies. The strength of labor markets. Federal Reserve monetary policy actions. Even in the context of these risks a recovery in construction spending was expected to materialize in the second half of the year – ending a three-year slide in US cement consumption. While those risks remain, the central risk to the forecast now centers on the economic impacts of the Iran conflict. The adverse impacts are driven by the price of oil and its influence on inflation and consumer spending. To this end, three scenarios have been sketched including an Optimistic, Pessimistic, and Baseline scenario. Each one varies based upon the length of the conflict and shipping blockage through the Strait of Hormuz. Each of these scenarios hold timing risks for monetary policy easing. The easing in monetary policy, combined with inflation conditions, play a key role determining the timing and degree of interest rate declines. Lower interest rates remain the key cog to ushering in a construction recovery. Assignment of Probabilities Critically important to our guidance is the assignment of probability to each scenario. To this end, a rough estimate is provided as to the likelihood each scenario materializes and when the conflict will end. The Optimistic scenario is valid if the war and the shipping disruption end very soon. The Baseline scenario is valid if the administration has an exit plan that limits the disruption to only two or three months. The Pessimistic scenario is valid if the conflict lasts longer than that. Increasingly, it seems that the administration does not have a clear plan for solving the shipping crisis or an exit strategy for the conflict. As a result, we assign a 50% probability of occurrence to the Baseline Scenario, 40% to the Pessimistic Scenario, and only 10% to the optimistic scenario.

Market Update Length of Strait of Hormuz lockdown could impact U.S. economic consequences Recent economic data reflected a modest economic weakening of conditions in the context of elevated inflation. Consumer spending increased – but at a rate less than expected. As a result, inventories  rose – sending a signal that future production may come in light. GDP for the fourth quarter was revised down from 0.7% to 0.5%. Finally, consumer sentiment hit record lows. All this remains within the boundaries of our pre-Iran conflict scenario that expected a first half economic softening, followed by a stronger second half of 2026. The key determinant, the economic outlook, does not lie in the typically reported monthly economic data. It comes down to one factor – how long shipping traffic through the Strait of Hormuz is hindered. The longer it takes, the more the adverse consequences to the economy. Oil prices will run higher, supply-chains will be stressed, and higher inflation will follow. Higher inflation will be imbedded in interest rates – to the detriment of construction activit y. About The Sullivan Report The Sullivan Report delivers subscription-based economic forecasts and market intelligence for the cement, concrete, construction, and building materials industries. Led by award-winning economist Ed Sullivan, its flagship U.S. Cement & Construction Outlook  provides five-year forecasts and expert analysis to support strategic decision-making. Learn more at TheSullivanReport.com  or contact info@thesullivanreport.com .

Breaking News: Market Update Strategically Incorporating AI in Industry Identifying the near-term impacts of artificial intelligence (AI) on employment and the economy is a critical facet of any market forecast. Depending on the assessment, it could impact unemployment, inflation, economic growth, monetary policy, and overall interest rates. No construction forecaster has the luxury of avoiding estimates of its impact. This article outlines potential AI impacts that underlie the basis of The Sullivan Report’s  (TSR) forecasts. The Debate: AI as a Job Destroyer…or Creator? The debate over artificial intelligence and jobs is often framed in extremes. One view warns that AI will cause massive unemployment, rapidly replacing workers across the economy. The other argues that AI is no different from past technological advances - like the automobile replacing horse-drawn carriages - and that technology has always  created more jobs than it destroys. Both views miss the most important point: timing. AI does not eliminate or create jobs all at once. In its early stages, AI primarily slows hiring by allowing firms to produce more with fewer incremental workers. Entry-level and routine roles are affected first, restraining job growth, and modestly raising unemployment without triggering widespread layoffs. As adoption deepens, some job displacement becomes unavoidable, particularly in clerical and basic knowledge roles. Only after AI reaches scale - enabling new business models, industries, and demand - does meaningful job creation emerge. Historically, technology creates jobs, but only after a period of disruption and adjustment. Throughout the remainder of this decade, AI is best understood as a near-term drag on employment growth and a longer-term source of productivity-driven job creation. This could deliver important implications for wages, demand, and economic policy – all of which impact the level of construction activity. Each stage suggests different implications for the economy. During the first stage, unemployment increases modestly. High and sustained productivity gains suggest a further bifurcation of consumers, or the buying power of high-income earners versus low-income earners. Productivity gains and softer labor market imply added factors pushing down inflation. If AI increases unemployment modestly and acts as a force to ease inflation, a more aggressive monetary policy could materialize. In addition, because inflation expectations are lower, all interest rates, on both short and long-term loans, will drift lower. This could have a positive material impact on private construction activity. To this end, AI’s labor-market impact is best understood as unfolding in distinct stages. Stage I is characterized by hiring friction and is marked by slower hiring - particularly for new labor market entrants. Stage II is characterized by measured displacement as firms restructure their workforce around AI-enabled productivity gains. In this stage job losses become more visible. Eventually, in Stage III, AI-enabled job creation emerges as AI adoption reaches scale and new business models mature. Stage I: Hiring Friction Has Already Begun The first labor-market impact of AI is not mass layoffs. It is hiring friction. When firms adopt new technologies that improve productivity, they rarely begin by firing large portions of their workforce. Instead, they reassess future  hiring needs. Entry-level roles are delayed, junior positions are consolidated, and replacement hiring becomes more selective. This effect is difficult to observe in headline employment data, but it appears clearly in hiring rates, job postings, and anecdotal reports from recruiters and universities. Recent U.S. labor market data may signal that Stage I has already begun. Evidence is accumulating that job market momentum is slowing. The Job Openings and Labor Turnover Survey (JOLTS) show a sustained decline in job openings from post-pandemic peaks. Quit rates have normalized. Hiring rates are easing. At the same time, anecdotal and survey-based evidence increasingly suggests that new college graduates are facing a more difficult labor market than would be expected given the aggregate data. Payroll evidence shows that in occupations most exposed to AI, employment among 22–25-year-olds fell about 6% from late 2022 to mid-to-late 2025, while employment for workers aged 30 and over increased. This pattern points to restrained entry-level hiring rather than cuts to experienced staff. College graduates appear to be on the front line, as many entry-level roles are exactly where AI is delivering the fastest productivity gains. AI contributes to a slowdown in job creation before it produces visible job losses. By reducing the need for incremental hiring, AI dampens monthly payroll gains even as firms retain existing workers and prompts   unemployment to increase 10 to 20 basis points (BP). This increase in unemployment is not from layoffs, but from longer job searches and weaker absorption of new entrants. AI adds to other factors such as cyclical economic conditions, demographics, and policy actions. These are expected to push monthly job creation down from an average 160,000 net new jobs monthly in 2025 to less than 50,000 net new jobs monthly this year. While the start of this stage is hard to peg, the macroeconomic AI impacts began to clearly materialize in 2023-2024. During this stage, impacts on inflation expectations and employment levels impacts are visible - but not large enough to significantly change monetary policy or interest rates. This stage likely persists for another 18–24 months  before clearly transitioning into the next phase of AI-driven labor adjustment. Stage Two: Measured Job Displacement Eventually, AI adoption will move beyond the initial stage and prompt companies to redesign workflows around AI rather than merely layering AI on top of existing processes. At this point, job losses become visible—not as a sudden shock, but as a steady erosion of certain occupations. Unlike cyclical layoffs, these losses are structural. They reflect permanent reductions in labor demand for specific tasks. It will take time for these processes to unfold. Budgeting and organizational redesigns must occur before headcount reductions materialize. In the meantime, companies are likely to rely on retirements, attrition and hiring freezes. In addition , firms need time to build confidence in AI systems, resolve legal and regulatory uncertainties, retrain existing staff, and reengineer processes. Those processes and assessments are already underway and may overlap stage one. The AI impact on jobs is expected to be a “white collar” phenomenon. More specifically, it is likely to impact routine office work first - such as basic coding, data processing, clerical and administrative roles, customer support and call center functions. It can expand as well into certain types of content production and marketing, paralegal, compliance, and entry-level legal research as well as back-office finance and accounting tasks. Initially, it does not seem to threaten white collar workers who are not engaged in these areas. The daily routine of every white-collar job, to a greater or lesser effect, will likely be impacted by AI. “Blue Collar” jobs will also be impacted, but probably later and to a smaller degree than white collar workers. The forecast baseline expects job growth to be reduced by 0.25- 0.50 percentage points per year between 2026 and 2030, concentrated in white-collar and early-career roles. This does not imply net job losses economy-wide, but it does imply slower labor-force absorption, especially for new entrants. In total, AI could reduce job creation by at least 300,000 workers per year and add at least 25 basis points to the unemployment rate. Over several years, this can translate into millions of “missing jobs” relative to a no-AI baseline. If this stage unfolds as expected, workforce participation may soften, particularly among older workers. Since job creation from AI remains limited at this point in time, and AI is still primarily being used to replace labor, political and policy responses will likely accelerate. This may lead to new regulations and laws which could diminish the adverse impact on job destruction. At the same time, it prolongs the timeline before the job-creation phase takes hold. During this stage, inflation expectations and employment levels impacts heighten and become significant enough to change monetary policy and interest rates. These changes may usher in more aggressive monetary policy easing - even though  AI-driven unemployment is structural rather than cyclical. The Fed typically reacts only to cyclical pressures, not structural ones. Once displacement becomes visible and politically salient, pressure will build on the Fed to respond through easier monetary policy, treating higher unemployment as labor-market slack rather than parsing its cause. The combination of easier monetary policy and lower inflation expectations results in lower long-term loan rates – to the benefit of construction activity. This stage is assumed to run from early 2027 through 2028. Keep in mind a strong construction recovery. Stage Three: AI-Enabled Job Creation Historically, technology creates jobs, but only after a period of disruption and adjustment. Eventually, AI will create jobs. The third stage, often cited by AI optimists, does not arrive quickly. Historically, general-purpose technologies generate net job growth only after they enable new products, services, and industries that did not previously exist. Electricity did not create jobs simply by replacing steam engines. It did so by enabling factories, appliances, suburbs, and entirely new consumption patterns. The internet followed a similar trajectory. AI must reach a scale large enough to enable the creation of new business models, industries, and demand. By the close of the forecast horizon, AI is expected to slowly progress to a net job creator. For the entirety of the forecast horizon, this job creation is unlikely to fully offset the initial job displacement. It is important to note that many AI-enabled jobs require higher skill levels than the jobs being displaced. This creates a mismatch problem, not just a quantity problem. Labor markets may experience simultaneous job openings and joblessness - not because jobs are unavailable, but because skills are misaligned.   Training and reskilling programs are likely to materialize internally within companies, by trade and colleges, and by industry trade associations. Implications for the Construction Industry Long term, this is a story of adjustment. An adjustment that after some disruption could ultimately prove beneficial to the economy and construction activity. Throughout the forecast horizon, AI acts as a deflationary agent. Heightened productivity lowers production costs and hence prices. Initially, AI will also slow or weaken job growth. This slows the near-term increase in wages and as a result places less demand pressure on product markets – also lowering inflationary pressures. Over the longer term, AI could contribute to lower interest rates by reducing inflation premiums and the “neutral rate.”  Lower inflation translates into lower inflation expectations and reduced inflation premiums on long-term loans. AI will help drive lower Interest rates. Arguably, higher productivity also suggests an even lower “neutral rate.” The neutral rate is the interest rate that neither stimulates nor restrains the economy, keeping inflation stable and output near its long-run potential. That means the Federal Reserve can ease interest rates more than if AI was not a factor. Lower interest rates favor long-term borrowing for single family and multifamily homes, nonresidential investments, and government spending. Lower interest rates stimulate construction During the first and second stages, slower job creation could offset some benefits of lower interest rates. Simply put, unemployed workers don’t buy homes, nor do they consume as much. In turn, this can lead to higher vacancy rates among some nonresidential properties – diminishing the strength of its recovery in 2027 and beyond. It is important to keep in mind that the AI impacts take place in the context of the greater economy. As interest rates and inflation drift down, partially due to AI, they will stimulate economic growth. Furthermore, the tax benefits from the One Big Beautiful Bill Act  and regulatory reforms could add further to economic strength. While AI could slow job growth and eventually materialize in job displacement, other factors going on in the economy could diminish this impact on construction activity. Oddly, the potential slack in job growth generated by AI could materialize just when overall construction activity is heating up. The construction industry has endured a persistent labor shortage on the jobsite. AI holds the potential of marginally reducing this shortage through concrete mix optimization, estimating, scheduling, design automation, and project management. Perhaps more importantly, if AI slows hiring, particularly for younger and entry-level workers, some could turn toward construction – potentially reducing the labor shortage. About The Sullivan Report The Sullivan Report delivers subscription-based economic forecasts and market intelligence for the cement, concrete, construction, and building materials industries. Led by award-winning economist Ed Sullivan, its flagship U.S. Cement & Construction Outlook provides five-year forecasts and expert analysis to support strategic decision-making. Learn more at TheSullivanReport.com  or contact info@thesullivanreport.com .

Recent Policies are Set to Shake the Economic Underpinnings and Raise the Risks of a Downturn. Introduction The economy has shown remarkable resilience over the past several years. Despite nearly double-digit inflation, and the rapid run-up in interest rates – the economy grew at relatively robust annualized rates. At the core of this performance has been consumer spending and labor market strength. Some of the economic strength can also be accrued to robust covid relief spending that takes a good bit of time to work its way through the system.  Altogether, real economic growth has averaged 3.5%, more than 4.8 million new jobs have been created, and unemployment has averaged 4% during the past two years. Recent evidence suggests that the economy may be drifting to a slower growth path. Job growth is slowing. During the past two months it has averaged roughly 150,000 net new jobs monthly.  That is down from a level of 250,000 per month a year earlier.  While job numbers can be volatile, the trend leans toward further weakening. There are also signs that the consumer is struggling under the weight of inflation. Some suggest that the growth in consumer income has outpaced the growth in inflation – leading to an improvement in spending power.  As a whole, earnings hae outpaced inflation – but not for everyone.  Workers at the lower end of the income spectrum have been hit much harder by the rise in costs. According to the Bureau of Labor Statistics (BLS) inflation calculation, 36% of the inflation index is accounted for by housing.  Food adds another 13%.  At average household income levels, that translates into $2,500 monthly.  In 28 states, the average housing cost alone is more than $3,000. Add food, clothing and other vitals, it is easy to paint a picture where households at the lower end of the spectrum may be struggling. It is no coincidence that defaults on credit cards, student loans, and mortgages are rising.  Make no mistake, they are rising from historically low levels.  But it does serve to point out stress that exists among consumer groups, particularly at the lower end of the income spectrum. Keep in mind, consumer spending performance is measured at the margin. A small two percentage point swing can mean the difference between a healthy and not so healthy consumption sector.  Stress among the lower income spectrums can be large enough to turn the story from good to not so good.  Consumer spending overall accounts for more than two out of every three dollars this economy generates.  With a decay in consumer spending, slower overall economic growth is likely.  All this partially explains the slowdown in job creation going forward.  By itself and given the resilience of the economy, it is not enough to push the economy into a recession.  An economic slowdown – absolutely. A recession – probably not. Key Administration Policies Impacting the Near-Term Economy Aside from recent policies by the administration, the economy is becoming fragile. Left alone, economic growth would likely settle near 1% to 1.5% growth during the first half of 2025.  In the context of continued improvement in inflation and sustained, albeit modest reductions in the Federal Funds rate, stronger growth could materialize in the second half of 2025. That is now off the table. Immigration, DOGE, and tariffs have dramatically changed the landscape. The adverse impact of each policy on economic growth might not be strong enough to push this fragile economy into recession. The combination of the three, however, could exert an adverse impact on economic growth strong enough to make negative economic growth materialize this year a very real possibility.  Consider... Uncertainty is rising among consumers and businesses.  Consumer surveys, such as The University of Michigan’s Consumer Sentiment’s, recorded a decline in February.  Business surveys, such as The National Federation of Independent Businesses, reported an increase in uncertainty in the business environment unmatched since Covid.  Industry surveys, such as The Homebuilders Index, reflected similar weaknesses.  These surveys, all from different viewpoints, are all singing the same tune.  The economy does not perform well in the context of high degrees of uncertainty.  Are you going to buy a new car if your job is threatened?  Invest in your business if things might sour? The questions are endless. Uncertainty, by itself, brings about a resistance to economic activity and growth. Policies undertaken by the new administration have contained a lack of clarity. Tariffs, for example, were threatened publicly, retracted, expanded and re-timed. Some still dismiss tough talk on tariffs as “the art of the deal” as part larger administration objectives. Similar arguments regarding uncertainty can be made with respect to the clamp-down on illegal immigration and DOGE. Near term, the implementation of tariffs hold the greatest adverse impact on near-term economic growth. Let’s not dismiss these policy initiatives as empty “tough talk”. These policy initiatives arguably hold the potential for heightened longer term growth (subscribers should stay tuned for a discussion on that topic).  For now, let’s only focus on near-term impacts and how they relate to the prospects of an economic slowdown. A treatise could be written on the impact of each of the tariffs that are either in place or scheduled to be in place soon. That’s not what this article is about. It’s about the potential impact on near-term economic growth. For these purposes, let’s focus only on the automotive tariffs. The selling price for the average imported light vehicle sold in the United States is $49,000. Imports account for 50% of total vehicle sales. If manufacturers and retailers maintain their pre-tariff margins, a 25% tariff implies an average increase in price of $12,160 per imported vehicle.  Domestic producers will likely increase their prices as well – either because component costs have increased or to take advantage of the situation to improve margins. Let’s assume for every 5% import prices increase; domestics increase by 1%. Combined that implies a 15% increase in the average price  for all vehicles . According to the Bureau of Labor Statistics (BLS), vehicle purchases account for 7.4% of the total weight used in calculating the Consumer Price Index (CPI). Combining these calculations, the 25% tariff on imported finished vehicles initially boosts the inflation rate by 1.1%. Furthermore, strategic plans in the automotive industry are “North American” focused. Each country – the United States, Canada and Mexico - play a role in suppling parts and components to the end-product. Furthermore, investment decisions are often made considering the economies of scale in servicing the continent – not an individual country. This sourcing strategy is more-or-less true for the North American automotive industry. Anything that disrupts this planned sourcing pattern disrupts supply and adds cost to the product. In determining the impact of automotive tariffs parts and components matter. This disruption in the supply chain adds to the economic cost of the tariffs. At this point some will argue it’s a one-time charge and not inflationary. They either miss the point or intentionally use semantics to confuse  (that’s another topic in queue for subscribers).  The point is  consumer spending  is significantly hindered – no if’s and’s or but’s. This additional adversity comes at a time when economic growth is becoming increasingly vulnerable. By itself, even this partial analysis of the tariff policies could be enough to push a retreat in economic growth. Tariff retaliation by trading partners darkens an already dark story. Other policies of the administration heighten uncertainty and weigh against near-term growth. From a strict economics point of view and putting legal issues aside, the tightening of illegal immigration adds to supply challenges in critical industries. Agriculture depends on these laborers. So does construction. So do services. Lacking the labor force to bring products to market either raises the cost of providing or limits production/supply. Both reduce output, reduce economic growth and add to inflation. Finally, while DOGE may offer beneficial long-term benefits to the economy, in the neat term it will add to unemployment  (subscribe to read the forthcoming discussion on the threat of the federal debt) . The combination of these three policies exerting an adverse impact on economic growth may be enough to make negative economic growth materialize during this year a very real possibility. The Federal Reserve: Late to the Rescue A significant slowdown from recent economic growth levels is expected soon. Typically, such a slowdown would usher in an easing in monetary policy and lower interest rates. These policy actions, in turn, could support a recovery and avert a retraction in economic growth. Unfortunately, this rosy scenario is not going to happen. The Federal Reserve has a dual mandate – to keep prices and unemployment in check. US policies regarding trade, tariffs, and immigration have increased the prospects of higher inflation. It will take a bit of time for these adverse policies to impact jobs. Because of their inflation concerns, this will likely delay any moves by the Federal Reserve to lower rates. Initially, the Federal Reserve will likely sit on the sidelines and keep interest rates unchanged. Only after the threat of a more significant decline in economic growth and labor market weakness raises its head, will the Federal Reserve slowly act to lower interest rates. A lot of time has to pass for all that to happen. Any action to cut rates will not materialize until the second half of 2025 – if then. At that point, the cow is out of the barn ( I am never sure what animal escaped but I know it’s a bad thing).  Adverse economic momentum, once in place, is hard to reverse. Initial steps by the Federal Reserve to lower rates will likely be modest (25 basis point). This implies a policy of too little, too late to save a recovery for the US economy. Economic growth could turn negative. Some may refer to it as a recession  (yet another coming discussion for subscribers) . But in the context of rising inflation, this suggests a mild form of “stagflation” whereby the economy experiences the concurrent malady of rising unemployment and inflation. Actionable Considerations No one has a crystal ball. These are my current thoughts regarding a likely outcome of how the economy will unfold in the near term. Policy reversals or modifications could occur – changing the likely outcomes. For now, based on the foregoing analysis, these are a few things to consider. Play nice at your job. According to my initial calculations, monthly net job losses could begin as soon as the third quarter. The rate of job openings could ease. Unemployment could eventually approach as high as 5%. In this context, wage gains may be slow in coming and bonuses may be harder to achieve. Create a family budget action plan. Think how you might trim expenses. Consider adding “gigs” to supplement income if needed. Don’t expect interest rates to move significantly lower soon. If you are waiting for significantly lower rates to buy a home, etc. – they may not materialize until 2026. Consult your investment portfolio professional, as this may be a time to add an extra dose of conservatism into your portfolio. About The Sullivan Report The Sullivan Report   delivers subscription-based economic forecasts and market updates tailored to the cement, concrete, construction, and aggregates industries. Its flagship publication, the Cement Outlook , is released three times a year and features 5-year forecast projections, expert analysis, and actionable insights to support informed decision-making and long-term strategic planning amid an evolving economic landscape. Guided by renowned economist Ed Sullivan, The Sullivan Report also offers keynote presentations and customized forecasting services for organizations and regions seeking deeper, data-driven market intelligence. For more information, message us here, visit TheSullivanReport.com ,  or email us at info@thesullivanreport.com .

Breaking News: Market Update Federal Reserve Shifting Mortgage Rates' Ripple Effect on Construction The U.S. cement and concrete industries have experienced three consecutive years of decline and accounted for a 10 million metric ton decline in annual cement consumption from its cyclical peak of 2022. High inflation has robbed public spending programs of its potency. High interest rates have been a critical ingredient in the weakness in private sector construction. High mortgage rates are a key point of focus regarding the recent weakness in home building. It is hard to visualize a recovery in the construction industry materializing without a significant reduction in interest rates, particularly conventional mortgage rates. New home affordability is so adverse that small improvements in interest rates, while helpful, will not lead to a significant recovery in homebuilding. Based on demographics, we estimate an under build of three to four million homes has materialized during this cycle. Once mortgage rates drop low enough that significantly improves affordability, it will likely unleash a torrent of pent-up demand for single family, townhouses, and condominiums. We estimate the threshold mortgage rate that is needed to unleash this demand is 5.5%. The recovery in construction activity will be ushered in by lower interest rates. The residential sector will lead this recovery. This article focuses on the outlook for mortgage rates and when the threshold rate might materialize. In essence, it addresses when the overall recovery in construction will begin.

Breaking News: Market Update Federal Reserve policy and its influence on money and financial markets Two inflation reports released this week show that U.S. consumer prices are holding stable, while producer prices are accelerating. Headline CPI was up 2.7% year over year, in line with expectations. Core Consumer Price Index ( CPI ) (excluding food and energy) rose 2.6% annually, slightly softer than expected. On the producer side, PPI  increased at an accelerated pace of 3.0% compared to a year ago. Softer consumer inflation and stronger producer inflation suggest that businesses have been absorbing a disproportionate share of the tariffs. Last week’s employment report underscored labor market deceleration, with only 50,000 jobs added in December, even as the unemployment rate ticked down to 4.4%. Wage growth remains positive but not robust enough to stoke labor-cost-driven inflation. Together, these data — along with a robust retail sales report — depict an economy characterized by moderate growth, elevated inflation, and cooling, but not collapsing, labor markets. Given the strength in retail sales and still-elevated inflation, the Federal Reserve will likely resist cutting rates at the next Federal Open Market Committee (FOMC)  meeting later this month. This keeps our 2026 outlook for inflation, employment, and interest rates on track. Our forecast continues to point to elevated interest rates and soft conditions for private construction through the first half of the year. About The Sullivan Report The Sullivan Report delivers subscription-based economic forecasts and market intelligence for the cement, concrete, construction, and building materials industries. Led by award-winning economist Ed Sullivan, its flagship U.S. Cement & Construction Outlook  provides five-year forecasts and expert analysis to support strategic decision-making. Learn more at TheSullivanReport.com  or contact info@thesullivanreport.com .

Breaking News: Market Update Labor Market January 2026 Report: Cooling The December 2025 U.S. employment report showed job growth of 50,000, a decline in the unemployment rate to 4.4%, and a modest acceleration in wage pressures. This reinforces the view that the labor market is slowing in an orderly, non-disruptive way. While the pace is well below that recorded during the post-pandemic expansion, it remains sufficient to absorb modest population growth without signaling recessionary stress. Importantly, stability in the unemployment rate suggests that labor demand is cooling roughly in line with labor supply, rather than collapsing outright. This combination points to deceleration, not deterioration, in the labor market. For interest-rate-sensitive sectors, including housing and construction, this report suggests there is no urgency to cut the federal funds rate later this month. Absent a significant downside surprise in future employment reports, the Federal Reserve’s pause in rate cuts is likely to extend further. Our assumption of one 25-basis-point reduction in the federal funds rate through the remainder of Powell’s term remains intact. With no alarms triggered by the labor report, attention now turns to the critical inflation data scheduled for release next week. Last month’s 2.7% reading showed significant improvement, though many suggest the report reflected downward data distortions related to the government shutdown. If improvement in inflation is sustained, it could imply lower inflation premiums in long-term loans and mark the beginning of declining long-term lending rates — a critical ingredient for a private construction recovery. About The Sullivan Report The Sullivan Report  delivers subscription-based economic forecasts, news, and market updates tailored to the cement, concrete, construction, and building materials industries. Its flagship publication, the Cement & Construction Outlook, is released three times a year - and features 5-year forecast projections, expert analysis, and actionable insights to support informed decision-making and long-term strategic planning amid an evolving economic landscape Guided by award-winning economist Ed Sullivan, The Sullivan Report also offers keynote presentations and customized forecasting services for organizations and regions seeking deeper, data-driven market intelligence. For more information, message us here, visit * TheSullivanReport.com ,  or email us at info@thesullivanreport.com .

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