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The Fed's Next Move Monetary policy is an important determinant of interest rates, and as a result it acts as a key influence for the construction outlook. High interest rates currently constrain construction activity, particularly in homebuilding. While rate cuts have begun to materialize, they are doing so at a hesitant pace. Given the time lags typically involved between a decision to cut rates and an increase in economic activity, the impact of the rate cut(s) on construction activity during 2025 is expected to be small. More aggressive interest rate cuts are expected to materialize in 2026 with a new Federal Reserve chairman. Current Chair Jerome Powell’s term will end in May 2026. His term began in 2018 after being appointed to the position by President Trump. Over the past 7 years, his tenure has been praised and criticized. In my view, his approach was pragmatic and data driven. He is not an ideologue or dogmatic person. While under intense pressure to reduce rates, Powell held firm and based policy decisions on careful, objective, and non-political analyses. He successfully defended the Fed’s credibility. He embraced doing the right thing for the economy - irrespective of politics, is what drove the strongest criticism. Powell’s replacement as Federal Reserve Chairman will have a huge impact on monetary policy. This, in turn, impacts the level of interest rates, economic and construction activity, the strength of the stock market, and inflation. This article looks at what monetary policy might look like in the wake of Powell’s departure. Succession Once selected by President Trump, Powell’s successor will be formally nominated by him and then appear before the Senate Banking, Housing, and Urban Affair Committee. That committee, chaired by Trump advocate Tim Scott (R-SC), will review the nominee and make a recommendation to the full Senate for confirmation . The Senate can approve the recommendation by a simple majority, and Republicans hold a 53-47 majority in the Senate. Trump’s influence in each phase of the process ensures that he holds the cards. He has stated that presidents should have a say in setting interest rates and has dismissed the threat of inflation posed by tariffs. Furthermore, he has argued that a dramatic reduction in interest rates is warranted now; new that interest rates should be 200 to 300 basis points lower than they are currently; and that his instincts are better than those of Fed officials. To succeed in this supercharged political environment, Powell’s successor may have to bend the knee and acquiesce to President Trump’s views regardless of his/her training and instincts. At that point, the issue of Federal Reserve autonomy may become a mute issue. Monetary policy could become a tool of short-term political goals, rather than a guardian of long-term stability. This holds the potential that it may be characterized by erratic rate decisions, inflation spikes, and loss of global confidence in U.S. monetary policy. The new chair will have to tactfully include Trump in the process yet at the same time maintain credibility of the Fed in key global financial arenas. That means the new chair will need to demonstrate the ability to push-back from Trump directives when needed. In short, the new chair will need what Powell has shown repeatedly – a spine. Lacking that principal quality, the next few years are going to be a wild ride. The Candidates for the Chair According to insiders, a handful of candidates are on Trump’s short list for the next Fed chairmanship (see below). In my mind, each candidate’s success of being appointed hinges as much on their policy abilities as they do their loyalty and obedience to Trump. They must have credibility in the financial community and be able to tactfully carry out an easier monetary policy agenda even in the face of potentially contradictory data. In the table below, I have used my judgement as to whether each candidate would cut the Federal Funds rate aggressively even in the context of 3% inflation. Such a possibility raises the risk that monetary policy could become a destabilizing force in the economy. As an interesting side note, the betting website “ Predictit ” has set odds on the next Fed Chairman. Trump has hinted that he may name his appointee soon. The Potential Fed Chair Candidate Prospects It’s Not Just the Chairman That Could Change Policy Most of the media focus is on the person who replaces Powell. While it is a critical role, the Federal Open Market Committee (FOMC) is made up of 12 people including seven Federal Reserve governors, and five regional Federal Reserve presidents. Governors are members of the committee for as long as their term lasts. The regional presidents serve one term on the FOMC and are then rotated out and replaced by regional presidents from other regions. The regional president of the New York district (currently John C. Williams) serves as the vice chair and a permanent member of the FOMC. This means that not only will the 2026 FOMC welcome a new chairman, but also five new regional presidents. Outgoing 2025 regional presidents were generally data driven and in no hurry to cut rates. Existing regional Fed presidents were supportive of Powell’s policy directives. Adriana Kluger recently resigned and was replaced by Stephen Miran, a Trump advocate. Governor Lisa Cook is expected to remain in place.  Finally, it is expected that Powell will resign his governorship once his term as chairman ends. Then, President Trump's appointee is expected to fill this seat on the FOMC. The incoming committee could suggest significantly easier monetary policy is on its way. While the incoming regional presidents that will serve on the FOMC in 2026 are arguably a bit more hawkish than the current group, they could be led by a chairperson tilted toward Trump recommendations. If aggressive rate reductions are undertaken in the context of persistent inflation, Fed credibility could be threatened. At issue is whether the incoming group has enough strength to stand up to and overrule the new chair and his/her supporters on the committee. This has rarely occurred. During the late 1970’s through mid-1980s, the committee overruled Chairs Miller and Volker three times. Since then, zero. Nevertheless, the power rests with the committee. While there are a lot of potential outcomes on how this all plays out, it is likely President Trump will play a key role in monetary policy next year. The full legal independence of the Fed will remain intact, but Trump’s influence could threaten its operational independence. Assuming the next Fed chair is on the Trump team, and the FOMC is more dovish on inflation than the current committee, monetary policy could ease significantly compared to Powell’s Fed. If the monetary policy does not march to the tune of Trump’s agenda, there will be political consequences. On the other hand, if the new Fed chair does not follow a path that can be reasonably argued as best for the economy, there will be consequences from the financial community and higher long-term rates. The Setting & Outcome Monetary policy does not occur in a vacuum. By the time Powell’s successor takes the reigns, the outcome of immigration and tariff policies’ impact on prices will be known. Consumers at the lower end of the income spectrum will likely struggle to make ends meet. The tax benefits of the One Big Beautiful Bill Act  will begin to materialize. At best, inflation will move sideways at an unacceptably high level; the economy will show growth no higher than 2%; and a labor market could show monthly job growth at a meager 50K monthly. At worse, inflation runs significantly higher, economic growth struggles to achieve positive growth, and job losses could accumulate. Stagflation materializes. It may take time for the differing outcomes to materialize. In any scenario, a more aggressive easing in monetary policy will initially  lower short- and medium-term interest rates. Mortgage rates could decline to the low 6% range. Housing, real estate, and capital expenditures are expected to improve. Access to capital will increase. This period could extend through year-end 2026. For planning purposes, the second half of 2026 will likely be characterized by a recovery in interest-sensitive construction sectors such as residential and some areas of non-residential construction. Given time, however, aggressive monetary policy actions will have significantly different outcomes depending on which set of circumstances it is laid atop. If the easing occurs in the context of already rising inflation, it actually could  reignite inflation to even higher levels, prompt the Fed to pivot policy by raising rates, and this could jeopardize growth in 2027. On the other hand, if it occurs in the context of improving inflation, it could stimulate the economy without stirring inflation risks and lead to strong, more sustained growth going forward. The aggressive easing of monetary policy in the context of:   Stable or slowly improving inflation could be just what the doctor ordered and accelerate the recovery in construction in the second half of 2026 and beyond. Elevated inflation can prolong and delay a permanent recovery in private construction. If this scenario materializes, it implies a modest construction recovery will materialize in the second half of 2026, followed by a step back in 2027. Whether aggressive 2026 rate cuts spell economic heaven or hell all hangs on the eventual impact that immigration and tariff policies have on inflation. Thus far, you have to squint to see policy-induced inflation in the current economic data. Maybe this pessimism on the inflation fronts and economic weakening is all wrong. Time and again, during this cycle, the economy has been challenged with adversities and outperformed pessimistic expectations. Its resilience is largely accrued to strength in consumer spending and the job market. This tandem, perhaps reinforced by reduced taxes, could once again be strong enough to maintain growth and at the same time avoid accelerating inflation. I am certain that more aggressive monetary policy will materialize during the second half of 2026 and that will lead to an initial  improvement in private construction. I have my fingers crossed that this all takes place in the context of subdued inflation and that aggressive monetary policy actions will raise near economic growth in 2026 and beyond. Unfortunately, I am not convinced inflation has been tamed. Tariff inflation may just be delayed in materializing – but not avoided. If this assessment turns out to be correct, and aggressive monetary policy easing occurs, a rough 2027 could materialize.  About The Sullivan Report The Sullivan Report   delivers subscription-based economic forecasts, news, 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 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 .

What's Ahead? U.S. Cement Supply Disruptions, Production Challenges, & Prices Increases Overview The new tariffs will impact the U.S. economic activity, job creation, inflation, and interest rates. These factors in turn, will adversely impact construction activity and cement consumption. This report specifically addresses the potential impact tariffs may have on the United States cement market. The discussion centers on the landed cost increases, whether the costs are absorbed by the importer, and strategies undertaken to mitigate price increases. While these new tariffs may be part of a negotiating strategy by the Administration, for the purpose of identifying the impact of these tariffs to the U.S. cement industry, let’s treat them as "at face value." Context: The Economy and Cement Market Initially, The Administration rolled out very aggressive “reciprocal” tariffs levied on 90 countries that, if implemented, would have raised the cost of cement imports entering the U.S. market by 19%. Days later, the Administration adjusted its tariff policy. Tariffs were reduced to an across the board 10% tariff. However, Canadian and Mexican tariffs are exempt from any tariffs, and China’s tariff was increased to 145%. Specific tariffs on automobiles, steel, and aluminum are unchanged. Planned tariffs on lumber and pharmaceuticals are still being explored. While the new tariff regime is a reduction from the initial concept, make no mistake, they will cause U.S. economic distress and adversely impact construction activity and cement consumption. Prior to the tariff ordeal, the U.S. economy was slowing, plagued by uncertainty, and becoming vulnerable to any disruptions. Even if the spin is that this was all part of the “art of the deal,” the recent gamesmanship will have significant adverse consequences. Retaliation will add to the hurt. A further weakening of the economy is expected. The U.S. construction and cement markets will not strengthen unless the job markets remain strong and  interest rates (mortgage and commercial) decline significantly. That is not going to happen this year. The only way a significant decline in interest rates materializes is in the context of a substantial economic downturn. In any case, for the third year in a row, U.S. cement consumption is expected to retreat. The REAL Costs of Tariffs There is a difference between a cost increase and a price increase. A cost  increase may lead to a price increase – but not necessarily. The new tariffs will raise the cost of bringing a foreign produced ton of cement to the U.S. market. How much the costs increase is dependent on the country of origin for the cement. Most cement imports entering the U.S. marketplace will carry a 10% tariff. Here's the rough math. Applying the tariff rates by the 2024 market share held by each importer yields the average increase in costs implied by the new tariff structure. By this calculation, the new tariff rates increase the costs on imports by 8.5%. For the market as a whole, tariffs add an incremental increase of 1.86% to total costs of servicing the market. The tariff cost is paid by either the foreign exporter or the domestic importer. Some of that cost increase will be passed on directly in the form of higher prices. Price negotiations between the importer and exporter will likely materialize. The importer may partially or fully absorb the added cost associated with the tariff – resulting in a detriment to profits. How much of the tariff cost is passed through determines the price increase. Factors Influencing the Pass Through of Tariff Costs The assessment of tariffs’ impact on the U.S. cement market is squarely rooted in how much of the cost increases associated with the tariffs are passed on in the form of higher prices. Without an assessment of actual price, any fundamental analyses of the tariff impacts on the U.S. market are hindered. A multitude of factors can influence how much of the added tariff costs will be passed onto consumers. This pass-through will likely vary by region, state-by-state, and possibly within some states. Assessment of the local market conditions is critical. (While more detailed local market analyses are preferred, the table in the next section below segments the market by seven major import regions.) It is also important to note that no information exists on import share, volume by state, or region. Imports by port-of-entry is used as a proxy. It is assumed that the volume of cement imported into Boston, for example, stays completely in the New England area. Imports into Los Angeles stay in the Southwest. The factors determining pass though of tariffs onto consumers focus on the level of competition and the alternatives to imports that prevail in a local market. In addition to local market condition assessments, weakness in market demand and excess global capacity could play roles. An extra wrinkle is the nature of multinational corporations and whether the imports are being sourced from within the company. Exporters Will Likely Absorb Much of the Tariff Cost Increases The global cement industry is currently operating at 57% utilization. This reflects roughly 1.65 billion metric tons in excess capacity. The tariffs will likely slow world economic growth. As evidence of this, the Baltic Dry-Index has declined 21% since April 1st. The dry-bulk, ocean freight rate reflects the shipping costs for dry-bulk ships used to transport cement, steel, and coal. As global conditions weaken, so will the transport rates. As a small consolation, the global economic disturbance caused by the tariffs is working to lower shipping costs – slightly offsetting the tariff premiums on cement exports. Weakened Business Conditions Limit Ability to Shed Tariff Costs onto Consumers During robust demand periods, characterized by strong cement consumption levels, the increases in costs are easily passed onto the consumer. The opposite is true. During economic downturns characterized by weak cement consumption levels, the exporter is more likely to absorb cost increases to preserve volumes. The U.S. cement market is expected to weaken through most of 2025. Competition for scarce projects will intensify. With this erosion in global and U.S. demand, it's likely cement exporters will absorb a high proportion of increases from the tariff costs. This could dramatically reduce the prospects of cement price increases. For exporters and importers that don’t absorb on the tariffs' impacts, consumers will likely shift to exporters that will. Increases in Domestic Production are Determined by Degree of Pass Through There are actions that could be undertaken to reduce import volume as a result of exposure to the tariffs. The domestic U.S. industry, for example, is operating near 72% clinker capacity utilization. Increasing the utilization rate and SCM usage could decrease the reliance on imports and reduce the price impacts of the tariffs.   Increasing domestic clinker production by 10 MMT and reducing imports by an equal amount is possible. Under the scenario whereby most tariff costs are absorbed by the exporter, incentive exists to increase reliance on domestic sources of supply. Some increase will materialize, but if it occurs, it will be limited. The opposite is true. The less that tariffs are absorbed, implies more domestic production. Regional and Cement Company Impacts The impact of U.S. tariffs will vary across regions, depending on the degree of reliance on imported cement. U.S. companies that depend heavily on imports to meet local demand will face higher sourcing costs and possible supply constraints. Exporters to the U.S. market are expected to bear the greatest impact, as they will likely absorb a substantial share of the tariff costs. The resulting decline in shipment volumes to the U.S. will place downward pressure on company revenues and margins, materially weakening their bottom line. 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 .

Market Update Compared to a consensus expectation of 100,000 net new private sector jobs, the ADP National Employment Report showed a decline in 33,000 jobs in June 2025. The weakness was concentrated in the service sector. Small business shed the most jobs, possibly a reflection of tariffs impact on their business. Construction recorded a 9,000-job gain. Most of the strength that materialized was concentrated in the central portions of the U.S. The report serves as an estimate for the “official” BLS jobs report that will be released tomorrow , July 3, at 8:30 AM Eastern. The BLS report plays an important role in the Federal Reserve’s policy formation. The accuracy of the ADP report in predicting the BLS results are dubious. The ADP report, however, can signal trends. As such, the ADP report’s data reinforces the trend expected in The Sullivan Report’s Spring Forecast which reflects a gradual slowing in the labor market and overall economic activity during the second half of 2025 and continuing into the first half of 2026. Tomorrow’s BLS report is the important one to watch regarding labor market conditions. 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 .

Market Update Introduction All forecasts contain risk that 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 scenario exists, and each materializes with even small changes in assumptions. The risks surrounding these scenarios remain high. They center on assessments regarding underlying strength of the economy and the headwinds that face the near-term economy. The key assessments include: 1. the impact of administration policies on the economic fundamentals. 2. Federal Reserve monetary policy actions. 3. the strength and resiliency of consumer spending. Data risks are also particularly important in this report. After the Baseline forecast was released, the Bureau of Labor Statistics (BLS) issued a massive revision regarding the labor market. According to the revision, 911,000 fewer jobs were created during March 2024 through March 2025. This suggests significantly greater weakness in the economy than perceived at the time of our Summer Forecast. While the Baseline forecast remains unchanged, some adjustments have been made to the alternative scenarios given the new data. Inclusion of the new BLS data also impacts the probability of each scenario occurrence – with the odds favoring a more pessimistic outlook compared to Spring’s alternative forecasts.

Federal Government Shutdown 2025 The federal government is once again shutdown. Since 1975, there have been 19 federal government shutdowns. Most of these shutdowns are short, averaging roughly one week in length. In each of the short shutdowns, the disruption to the economy has been muted. Furthermore, whatever disruption that materializes during these brief shutdowns, nearly all of the lost economic activity is quickly recaptured once the shutdown ends. No permanent economic losses have generally been accrued to these short shutdowns. The magnitude of the adverse impact on the economy, however, varies directly with the length of the shutdown. Longer shutdowns carry more significant economic disruptions and permanent losses to the economy. These losses reflect lost consumer spending by furloughed workers, cancelation or delays in government contracts, reductions in tourism at national parks, as well as the overall adverse impact on consumer sentiment. Data: US Federal Government Shutdowns since 1995 Six shutdowns since 1975 have endured at least ten days. As estimated by the Congressional Budget Office (CBO) , the immediate and longer-term impacts on economic activity from these shutdowns are more pronounced. Typically, when the federal government shuts down a disruption to the economy immediately materializes. Immediately after the shutdown ends, the economy quickly recovers foregone activity lost during the shutdown. This essentially shifts economic activity across quarters. The Congressional Budget Office (CBO) estimates that each week of shutdown reduces quarterly GDP growth by about 0.1 to 0.2 percentage points. In past shutdowns, much of that output was recovered once funding resumed and workers received back pay. Most, but not all, economic activity lost during the shutdown was recaptured. Any permanent loss to the economy depends on the length of the shutdown. Aside from the timing of economic activity, the rule of thumb for federal government shutdowns is that no significant damage is done to the economy until a minimum of two weeks passes. Long shutdowns always carry economic costs. This time, the shutdown impacts may be different. The White House has directed agencies to prepare reduction-in-force (RIF) plans - permanent layoffs that go far beyond the temporary furloughs of past shutdowns. Traditionally, shutdowns trigger furloughs of “non-essential” staff, who later receive back pay; while essential workers—such as military personnel, air traffic controllers, and law enforcement - must keep working without pay. There are currently 2.2 million federal workers. Of these, roughly 725,000 are considered “essential” and likely not subject to the RIF. That leaves 1.475 million exposed to RIF fallout. A 5% RIF of these workers translates into nearly 75,000 workers, and a 10% RIF translates into nearly 150,000 workers. No “target” level of job reduction has been announced. Keep in mind that the average employee cost (pay plus benefits) for a federal employee is roughly $147,000. For every 100,000 workers cut, that translates into nearly $15 billion in annual savings. Government RIF Layoffs The threat of permanent layoffs implied by RIFs magnifies the damage. While the economy has recently posted some relatively good news regarding its strength, it is still vulnerable to a downturn . That implies that a long shutdown, accompanied by a drop in consumer confidence, could cause a significant disruption to the economy at a time when it is ill-prepared to handle such a disruption. This time, agencies have been told to identify programs dependent on discretionary funding, and to target positions “not consistent with the President’s priorities” for permanent elimination. Presumably, the RIFs are aimed at reducing the footprint of the government and its annual deficit. Impact on Construction Projects From a more singular focus, the construction industry, in particular, faces a mix of disruptions during shutdowns. Federal Building Projects:  New GSA buildings or Army Corps of Engineers projects tied to annual appropriations may stall if contracts are not fully obligated before the shutdown. Payments to contractors can be delayed, creating cash-flow problems for firms. New contract solicitations are also suspended. Highways & Transit:  Most roads, bridges, and transit projects continue thanks to the Highway Trust Fund, which is mandatory and not subject to annual appropriations. Delays here are usually administrative - such as slower reimbursements or approvals - meaning activity is deferred rather than lost. Airports & Aviation:  FAA construction and safety upgrades requiring agency review may face delays if inspectors and administrative staff are furloughed. Permitting & Oversight:  NEPA reviews, EPA approvals, Army Corps wetlands permits, and OSHA inspections can all be delayed - slowing the start of new projects. State & Local Spillovers:  Infrastructure projects that rely on federal matching funds may face financing gaps if states hesitate to front money without assurance of timely reimbursement. For most projects, especially highways and already-obligated federal contracts, a shutdown is largely a matter of timing. Work is paused and then made up later in the year. But there are circumstances where activity is permanently lost. Smaller contractors facing cash-flow pressures may not survive prolonged delays. Federal contractors are not guaranteed backpay, meaning lost wages and output never return. Permitting bottlenecks can push new projects months down the line, sometimes colliding with financing deadlines or construction seasons. And if RIFs shrink the federal workforce in permitting or oversight agencies, project approvals and safety inspections could slow for years to come - creating a lasting drag on construction activity. How the Economic Outlook Could Change The shutdown could be over quickly or take a bit of time to be resolved. To explore the potential impact on the economy and construction activity, let’s build a scenario making some key assumptions. Consider the following: It seems both sides have dug their heels into the sand with little effort to compromise. The longest shutdown in history, 35 days, occurred during Trump’s first administration. This shutdown could rival the length of that one.   The prolonged 35-day shutdown is accompanied by a RIF of 150,000 - 10% of nonessential federal workers. Using these assumptions and past behavior during shutdowns, real GDP could reflect a minimum 0.6% reduction in real GDP growth. According to the   Philadelphia Federal Reserve Survey of Professional Forecasters , third-quarter growth was expected to average 1.4% growth. That estimate does not include the shutdown. Subtracting out that impact, leaves third quarter real GDP growth at 0.9%. The extra weakness could boost unemployment and lower inflation – temporarily. Real GDP Growth in Shutdown: Annualized Percentage Change   Arguably, these developments could bolster the case for an October rate cut by the Fed.  Two points may counter that viewpoint. First, the Fed may dismiss the shutdown phenomenon as transitory. Second, due to the shutdown effecting government reporting agencies, there may not be new data for the Fed to consider. In this context the Fed sits.  This scenario suggests if the shutdown persists for 35 days, the Fed will sit and if needed make a cut at the December meeting. After the shutdown is settled (early-November), there will be a recapture of activity lost during the shutdown and furloughed workers are expected to receive back pay. This will boost economic activity during the remainder of 2025 and into January 2026. Not all activity lost during the shutdown, however, will be recaptured.  Typically, the longer the shutdown, the lower the recapture rate. This period will also be characterized the loss of 150,000 federal worker jobs that materialize under the RIF. Combining the two impacts yields an estimate of roughly a 0.3% draw to fourth quarter growth. If all this materializes, the shutdown will have little impact on 2025 construction activity.  In the context of weaker economic activity resulting from the shutdown and RIF, the Fed could move to cut rates faster and more aggressively compared to our current forecast outlook. As such, private sector construction, particularly single-family construction could be marginally stronger.  All this, however, materializes in 2026.  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 .

Market Update American homeowners are facing unprecedented increases in home insurance premiums. From coastal communities vulnerable to hurricanes to wildfire-prone areas in the West, the cost of insuring a home is skyrocketing. This reflects an increase in the frequency and severity of natural disasters as well as rising construction costs. Combined, these add to disaster settlement costs which is eventually passed onto the homeowner. This is ultimately reflected in higher monthly insurance premiums. Bureau of Labor Statistics (BLS) data for “property, casualty and insurance premiums” reflects rapid and sustained growth in premiums since late 2023. Climate change is a principal cause of the premium increases. But it’s not just the severity and frequency of disasters that are running up premiums. The costs of building materials, labor, and home repairs have all increased as well [1] . This means insurance companies must pay more to settle more claims. As a result, insurers are passing these expenses on to policyholders through higher rates. Scientists are suggesting hurricanes, high winds, wildfire, and flooding will become even more intense and frequent in the years ahead. Given the prevailing shortage of construction workers that will be exacerbated  by strict immigration policies and tariffs –  repair costs will likely keep climbing. Together, these pressures point to the beginning of a longer-term trend in rising home insurance costs. The Home Insurance Premium Run-Up While all U.S. regions  will be affected by climate change, the impact will differ among states. Since 2020, some states have endured sharp premium increases , while six states have experienced outright declines in the average annual premium. Typically, states with more frequent and costly  claims tend to face the largest increases. The Flight of Insurers and the Rise of the Underinsured   While the frequency and severity of natural disasters are increasing, they are increasing at an unpredictable rate. This implies that insurance underwriters may underestimate the true risks of insuring. These potential underwriting errors could spell financial disaster for insurers. Lacking the ability to adequately assess the risks in a specific market can lead some  private insurers to lose money – a lot of money.   Since 1970, the total monetary damage (inflation adjusted) caused by hurricanes, for example, has surged from $18 billion per decade to an estimated rate of more than $600 billion per decade.  Each type of disaster causes damage, drives insurance losses, and ultimately pushes premiums higher - or, in some cases, makes insurers hesitant to underwrite new policies. As insurers’ risks become elevated, some insurers have begun to leave specific regional markets. Indeed, the flight of insurers has already begun. Consider the following: Florida : Over a dozen insurers either go insolvent or exit the market entirely due to hurricane losses and a high volume of litigation. California : Major insurers like State Farm and Allstate have stopped writing new policies, citing wildfire risks and regulatory constraints on rate increases. Louisiana : After multiple hurricanes, at least 11 insurers became insolvent, and others left the state. South Carolina : More than a dozen insurers became insolvent or exited between 2021 and 2023. Colorado : Wildfire damage and rising construction costs have led to insurer pullback. Texas : Severe storms and flooding have prompted some insurers to reduce their exposure. Unfortunately, natural disasters are expected to strike  with even more fury than in past years. As they become more frequent, the likelihood of huge financial insurance losses will grow – raising the risk that even more   insurers will withdraw from  these and other states.   After private insurers have left, stopgap measures are often implemented - such as the formation of state government-financed public insurance for homeowners. Often the financial duress is so enormous that they can jeopardize a state’s fiscal health. To pay for these costs in excess of insurance collections, tax increases, cutbacks in state spending programs, or an acceptance of more debt are the likely outcomes. None of these are good.   Given the risks, even the state’s public insurers will raise premiums and become more discriminating in writing new policies. M ortgage lenders require borrowers to purchase homeowner’s insurance policies that cover a range of losses, including those from natural disasters. The ability of new home buyers to secure insurance may represent a significant hurdle in the years ahead. While this may not prevent growth in home sales and new home building – it will likely reduce its rate of growth.   In response to elevated rates, some homeowners who own their house outright may roll the dice and forego insurance altogether – avoiding any bank loan requirements. If disaster hits, they absorb the losses or share them with a government organization either at the state level, or national level (FEMA). More often than not, the retired who moved to warm weather regions and live on fixed incomes will have to cross their fingers that the next hurricane will pass by them. Unfortunately, natural disasters will eventually materialize. In 2023, insurers covered $80 billion of the $114 billion of losses attributable to natural disasters. This means that $34 billion were not insured. Those with insufficient coverage may not be able to rebuild or replace their homes, deepening financial hardship and disrupting communities.  Given Time, This Will Prompt a Redistribution of U.S. Population Arguably, U.S. population migration has been moving from safer regions toward increasingly risky areas over the past several decades. For years, United States demographics have shown a movement from the north and eastern states to the south and western ones. These shifts were not just the appeal of sunny warm weather. They also reflected a heavily unionized northeast and a less friendly labor union environment in the south. Business investment in the more favorable environment attracted those in pursuit of job opportunities while retirees were often attracted to the warm weather -  regions usually characterized by high weather risks. As insurance becomes harder to obtain or afford, homeowners may reconsider where they live. While no region in the country is immune from climate change, the risks of damage to homes are not equal. For example, insurance costs in the New England region are lower. Desirability to reside in these states could also improve given the  lower disaster risks there. Over time, the population shift south and west that we have observed over the last decades – could reverse. A general movement north and east could materialize.   These trends will take decades to fully culminate. Once they do, they could result in a significant re-distribution of population. Cement plants are often located 250-300 miles to their principal market. If this holds true in the future, it may require these multi-nationals to reassess their long-term strategic investments.   All This Represents an Opportunity for the Concrete Industry.   Wind, wildfires, and flooding represent the key culprits in climate change-induced disaster settlement costs. Building materials matter. Concrete homes/buildings best withstand hurricane winds and are fire resistant. Most architects and building engineers agree with the structural benefits of concrete structures. Currently, we have continued to build cheap -  the way we did decades ago without recognizing the new threats posed by climate change. The local code boards allow this to materialize. Often, the outcry for stronger building standards surfaces immediately after a disaster subsides - and the old building standards go unchanged. Codes and standards modifications are very complex and slow processes to implement - often characterized by powerful, well-funded building materials companies each protecting their own interests. Heightened building codes aimed at reducing the potential insurance settlement costs are needed. Bold measures undertaken by the concrete industry in the codes arena must be doubled down to make homes more resilient and safer from disasters. To better ensure the success of these efforts, testing of the “new” green concrete’s performance under hurricane, tornado, or wildfire conditions must occur. Such efforts may spur the concretization of homebuilding and the insurance industry’s support of such initiatives. [1]  The cost to rebuild homes has surged due to inflation in labor and materials. Between 2019 and 2024, construction labor costs rose 40%. The new tariff regime is uncertain. But lumber, steel, aluminum, copper are all likely to record tariff related increases. These added costs borne by the insurer to settle a claim will be passed on. 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 .

Market Update The Federal Reserve  policy decisions are data-driven. It has been hesitant to cut rates given the potential of higher tariff-driven inflation, resilient economic growth, and only a slowly softening labor market. Generally, the risks of higher inflation have been balanced by an easing in labor market conditions.  Given the balance of risks to the economy, The Fed sat – neither raising nor lowering rates. This week’s data has likely changed The Fed’s perception of economic risks - just one week prior to the Federal Reserve’s Open Committee  (FOMC) meeting. The Bureau of Labor Statistics  (BLS) revised down by 911K jobs created from April 2024 through March 2025. That alone paints a much weaker picture of the labor market than implied by the unrevised data. Additionally, the August payroll employment report showed only 22K new jobs created during the month. Finally, today’s report on jobless claims soared to 263K – reinforcing the labor market weakness. Jobless claims climbed to 263K today, highlighting signs of a weakening labor market. Further emphasizing weakness in the economy, the Federal Reserve’s Q2 credit report showed r evolving credit (credit cards) increased at an annual rate of 9.7%. Keep in mind, reliance on credit card debt is an expensive, and temporary, solution to make ends meet. According to The Federal Reserve, the average APR on credit card debt is 21.2%. Increased reliance on credit card debt can lead to high-interest rate charges that can compound struggling households’ ability to spend. Credit card and auto loan delinquencies have been on the rise. Presumably, this trend is most evident among the lowest income strata (population) - with the potential for this phenomenon to gradually embrace the middle-income strata. If that materializes, the outlook weakens for consumer spending which accounts for 70% of total US economic activity. On the inflation front, significantly higher tariff-induced inflation was expected to materialize in August. It did not. Consumer and producer price indices were relatively tame compared to expectations. This surprise signals that importers may be absorbing a greater portion of the tariffs than previously assumed. In addition, weakness in the economy may cause moderation in inflation. The potential strength of these deflationary spirits may signal a more severe decline in economic activity is underway. These reports, particularly the revisions in the labor market strength, paint a dramatically different picture of the economy. The risks to the economy are no longer balanced. The threat of economic weakness is much greater than previously anticipated, and perhaps inflation is less of a threat. The new data that will likely push The Fed to cut rates next week – and perhaps more aggressively through the remainder of the year than previously expected. A 50-basis point (BP) cut in the federal funds rate is not off the table at next week’s FOMC meeting. If the Fed opts for only a 25 BP cut, the potential exists that a more aggressive Fed posture may show up at subsequent 2025 FOMC meetings. The immediate impact of an aggressive September Federal Reserve policy pivot on construction activity is expected to be small due to the lag structure associated with monetary policy. However, larger impacts may materialize in 2026. Keep in mind, a recovery in private construction activity requires a reduction in interest rates AND relatively strong labor market conditions. 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 .

Too Little, Too Late. A Difficult Year Lies Ahead    Overview The Federal Reserve (The Fed) plays a critical role in determining near-term interest rates. Its policy directive is to maintain stable inflation and low unemployment. This directive is called the “ Dual Mandate .”   Business cycles are often formed by fluctuations in economy-wide demand conditions. Too much demand leads to inflation. Too little demand leads to unemployment. By the raising or lowering the Federal Funds interest rates, among other monetary tools, the Fed can inject or reduce demand in the overall economy. This “countercyclical demand management” policy is not precise. Raising rates too fast could result in recession. Lowering them too quickly could result in inflation. As such, it is prudent for the Fed to take small steps to avoid over correcting. In addition, the policy actions do not produce immediate results making the calibration of policy even more difficult. Finally, the direction of monetary policy is clear when it's either elevated inflation or high employment. Fed policy can address one – not both. Unfortunately, today’s economy is characterized by both increases in inflation and unemployment. The last time it happened was in the 1970s. This creates a problem for the Fed. What does it fight? Inflation? Unemployment? Current Policy: Sit The Fed last policy action was late December 2024. At that point, inflation was gradually easing, and signs that the economy was cooling were beginning to emerge. Since then, progress in reducing inflation to the Fed’s target rate of 2% has not materialized as expected. While signs that an economic slowdown have been emerging, labor markets have been strong enough. Lacking a clear direction of the economy’s path, the Fed sat – neither raising nor lowering rates. Tariffs raise the prospect of higher inflation. Tariffs simultaneously threaten near-term economic growth and labor market strength. It will take time for these forces to develop and be clearly seen in the data. For now, this suggests the Fed will continue to sit. The slow emergence of data and the uncertainty regarding policy directive could make "the sit" a bit longer than some expected. A recent survey of Federal Reserve Governors on policy actions for 2025 showed nine Governors in favor of two, 25 basis point (BP) cuts, eight in favor of one or no cuts, and two in favor of more aggressive cuts. There is no clear consensus on near-term policy direction. Moreover, the threats facing Fed policy is neither fighting inflation nor unemployment – it’s both. Between the two evils, most Federal Reserve Governors consider inflation the more potent threat to the economy and lean toward fighting that as its prime directive. When The Fed Will Act The potential slowdown in economic growth itself will bring down inflation. By delaying the timing of the next move - and allowing recessionary spirits to brew a bit longer than, inflation may ease to levels with which The Fed is comfortable. Following this logic, the next move will be to cut. A lot of time has to pass for all that to happen. According to this scenario, even as momentum of the recession/downturn gains strength, the Fed will sit . Only after the threat of higher unemployment reaches a level to ensure an easing in inflation will the Fed act to cut. Because of uncertainty of results regarding monetary policy actions, the initial steps are expected to be modest – 25 BP at a time. Any action to cut rates will not materialize until the second half of 2025 – if then. As soon as the Fed makes a cut, don’t expect immediate results. While there will be some immediate results that materialize in some sectors, such as finance, the full impacts of a rate cut on the economy take a long time. The effect of a rate cut policy gradually builds, reaching a maximum impact, and then the effect of the cut gradually fades. Economists estimate the lag as long as 18 months. 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.)  Once in place, adverse economic momentum is hard to reverse. Initial steps by the Federal Reserve will be viewed as a policy of too little...too late to save a recovery for the U.S. economy. Delays in policy actions. Long wait for full impact. Too late to help 2025. Economic growth could turn negative. Some may refer to it as a recession. But in the context of rising inflation, this suggests a form of “stagflation.” It's whereby the economy experiences the concurrent malady of rising unemployment and inflation. In the meantime, the economy is expected to drift weaker – giving rise to more aggressive rate cuts. In the meantime, interest rates will slowly drift lower as demand in the overall economy eases. For the most part, key interest rates, such as 30-year conventional mortgage rates will remain near the 6.5% to 7% range through the first half of 2025 – and well into the second half. These high rates will be set in context of a weakening labor market. By the third quarter, monthly job creation could near zero – from an average of 150,000 net new jobs currently. Timing is everything. Take construction-related industries. Eighty percent of all construction activity is typically completed by the end of the third quarter. The Fed might only be starting its rate cuts at that time. Then, take into account the policy lag issue. And this is the context in which business will try to salvage a year of growth. It’s not going to happen. Too little. Too Late. The Fed won’t save us this year. A difficult year lays ahead. The odds of recession are high. 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 .

Market Update Introduction Few economists are expecting the Federal Reserve to cut the federal funds interest rate this week at the upcoming FOMC (Federal Open Market Committee) meeting. Most are expecting the Fed will cut them at the September meeting. Many expect that cut to be followed up with another cut in in either October or December 2025. For the record, my summer forecast assumes a 25 BP (basis point) cut in September and another 25 BP cut in October. Those assumptions, however, are being reconsidered. The possibility of no Fed rate cuts this year is now on the plate for analysis. The Argument for No Further Fed Cuts in 2025 Recent data has shown that labor markets are slowing - softening from a strong position, and inflation has not edged up – even with tariffs in effect. If labor markets average less than 135K net new jobs monthly for the next three months, and inflation remains subdued, a September rate cut is assured. Indeed, a recent survey of economists puts the odds of a September cut at 100%. The one thing I know is, if 100% of economists agree on something, bet against it. My reasoning to lean against the consensus and consider the possibility that there will be no further cuts in the federal funds rate until next year is based on three factors including: Upcoming data that is likely going to reveal elevated inflation. The prime Federal Reserve objective is fighting inflation, and labor market strength is secondary. High levels of uncertainty that raise the stakes on a Federal Reserve misstep Dismiss the possibility of a rate cut this week. The Federal Reserve is clear that its monetary policy decisions are going to be data driven. Tariffs and their secondary impacts are the most critical near-term concerns facing the economy. Tariffs’ potential adverse impact takes time to be revealed in the data. Insufficient information will be in place for a decision to cut rates. As a result, the Fed will sit.  After this week, the next FOMC meeting is held in mid-July, then again in mid-September, then late-October, and once more in early December [1] .  By the September meeting more data will become available. The June, July and August jobs and inflation reports will be available. The tariffs impact on the economy will begin to emerge by that point. In addition, it is possible that Congress could reach agreement on the Big, Beautiful, Bill (BBB) regarding tax reform.  This potentially adds to expected future inflation. If the data during this period shows any of the following, it is unlikely there will be a rate cut: If there is an upturn in the inflation rate there will be no rate cut. Depending on the magnitude of the increase in inflation, and the stability of the labor market, a rate increase  cannot be ruled out.   If there is no significant deterioration in the fundamentals of economic growth, or in the labor market, there will be no cut.   If the BBB is passed and it is deemed to hold significant inflationary potential, the Fed will struggle to reach a decision endorsing a rate cut.  Keep in mind, there is a good bit of uncertainty surrounding the direction of inflation, economic growth, and the labor markets. Uncertainty clouds the Fed’s ability to forecast economic conditions with confidence. When inflation, employment, or growth trajectories become difficult to predict - due to factors like trade tensions, geopolitical instability, or erratic fiscal policy - the Fed often adopts a cautious stance. As Fed Chair Jerome Powell recently noted, “heightened uncertainty” stemming from shifting trade policies and inflation dynamics has made it harder to assess the appropriate path for interest rates. In such an environment, the Fed tends to prioritize patience and flexibility , rather than acting preemptively. The cautious and flexible stance preferred by the Fed is to sit. Three factors must combine to knit together a scenario whereby the Fed cuts rates. These factors include: No significant inflationary impact is observed in the data originating from the tariffs. Inflationary expectations in the near future muted. The economy demonstrates continued softening and monthly labor markets show net job creation below 135,000 net new jobs or less. That is a lot to ask for a September Fed rate cut that seems to be etched in stone by the consensus of economists.  The issue comes down to what the data will show over the months leading up to the September meeting. Despite “successful” negotiations with our trading partners, compared to the start of the year, higher tariffs will remain in place (the effective tariff rate is currently estimated at 14%). With tariffs, the landed cost of imports will increase.  How much of that translates into higher prices depends on how much is absorbed by the importer. If the added costs are completely absorbed by the importer, there is zero inflationary impact.  A recent Federal Reserve survey showed that so far, 77% are passing the added costs onto consumers (23% absorption). Taking into consideration the specific tariffs imposed on countries and products, my rough estimate is that given time, inflation will be boosted by nearly 150 BP by year-end (from 2.4% to 4.0%). If that is remotely accurate, it will begin showing up in the inflation data in time for the September meeting. While the economy is also expected to weaken by the next FOMC meeting, labor market weakness will take a bit more time to materialize and net job gains may not fully reflect the weakness in the economy.  Showing heightened inflation, the Fed to sit again.  One month’s additional data is probably not going to change the Fed’s mindset a month later. The Fed could easily sit again in October. That leaves only the early December meeting for a possible cut. Having done nothing to intercede, the tariff impacted inflation will likely not improve. Finally, the Senate is hoping to pass the Big Beautiful Bill by the fourth of July. This tax cut will probably add concern about future inflation levels and could further diminish the likelihood of a Fed rate cut. What This Means for Construction If all this comes to play, Federal Reserve rate cuts may not materialize until 2026. Furthermore, the Big Beautiful Bill could stimulate the economy enough to provide shelter for the Fed to actually increase  rates. Admittedly, the odds of a rate increase are remote but that possibility cannot be completely dismissed.    Private construction activity will not strengthen until interest rates come down in the context of relatively strong labor markets.  The prospects of higher inflation, larger federal deficits, a decline in the dollar’s status as a reserve currency all place upward pressures on interest rates. This, coupled with the likelihood that the Federal Reserve will take a careful and prudent approach by waiting on data before initiating policy, suggests monetary policy will not be quick to lower rates.   The Sullivan Report forecast released in March contains two, 25 BP rate cuts this year (September and October). Further cuts were envisioned in 2026 – leading to a modest private sector construction recover in the second half all 2026. Even with those cuts, The Sullivan Report’s projection for the rate of decline in 2025 cement consumption was double that of consensus. If this more passive Fed policy position is incorporated into the scenario, the rate of decline in 2025 cement consumption could be more than originally expected and could also adversely impact the outlook for 2026. [1]  The Federal Open Market Committee votes to determine the Federal Funds rates.  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 .

Introduction Retail construction does not get much attention, but it is critical to a recovery in private, nonresidential cement and concrete consumption. It accounts for 65% of total nonresidential cement and concrete consumption [1] and 12% of total cement consumption. Among the key consuming sectors, retail ranks only behind highways and streets - and single-family construction as the leading cement and concrete consumer. The sector has been in decline for some time. Of the total 5.3% drop in total cement and concrete consumption in 2024, the retail sector accounted for nearly a quarter of the decline. It is hard to visualize a recovery in nonresidential cement consumption without a recovery in this important sector. This report assesses the outlook for retail construction and its role in determining the depths of 2025’s downturn in cement and concrete construction - as well as the timing and strength of recovery that may materialize in 2026 and beyond. Retail Construction Performance Retail construction in the United States has been on a general decline since the mid-2000’s. This trend reflects both structural and cyclical factors. The growth of online shopping has prompted varied responses by retailers.  Each response has contributed to a structural decline in retail construction. More recently, high interest rates, rising construction costs, and growing business uncertainty have contributed to an adverse business environment. Together, these factors have resulted in a real dollar decline in retail construction of 10.8% in 2024. Through May of 2025, retail construction is off another 7.1%. There is no indication that the recent trends will reverse soon, particularly in a slowing economy. If these trends stay in place, they represent a powerful factor weighing against a near-term construction recovery. Structural Change Retail construction was vibrant up until the early 2000’s. It was dominated by mall construction which were typically anchored by a large “name” chain. The larger and more diverse store offerings, the better. Typically, malls were accented by parking garages (huge consumers of concrete). Retail projects were profitable and often topped a 10% ROI.  During this time, retail construction averaged more than $70 billion annually in real dollars (adjusting for inflation).    The emergence and success of online retail sales activity has had a dramatic impact on retail construction. While the internet birthed in the 1980’s, online sales activity did not really take off until four key factors materialized including: Widespread internet access Secure payment systems Friendly browsers Key demonstrations of the potential for online sales by online pioneers like Amazon, eBay, and Shopify Online sales did not achieve 5% of total retail sales until 2012. The trend increased steadily and accelerated during COVID. Many shoppers during COVID were forced to overcome hesitancies regarding on-line shopping and give it a try. More often than not, the consumer experience was easy and positive. Currently, 16.2% of all retail sales are conducted online. Its success has come at the expense of brick-and-mortar retail outlets. This trend has prompted retailers to adjust their strategies. They are moving away from urban in favor of suburban locations, and they are opting for smaller, more flexible shop formats with smaller footprints. Big box store construction is still ongoing, but 2024 saw only 27 stores construction and square footage was the lowest in eight years. Similarly, parking garage construction (included in the retail construction data) has declined significantly. Investment is now skewed toward warehousing and online order fulfillment. Almost no new mall construction is ongoing. Indeed, the focus for malls is now focused on converting or demolishing underperforming malls. Mall vacancy rates are rising and are the highest among the retail sector at 8.9% versus sub-5% in many other retail types. Finally, many anchor tenants have entered into bankruptcy (e.g., Bed Bath & Beyond, Sears, etc.) It’s not just malls. Some regions in the United States have long been over retailed. The national market has the highest square footage of retail space per capita in the world. Many developers are focusing on repurposing existing buildings - converting malls into mixed-use spaces or offices - rather than building new stores. These trends are expected to persist. By the end of the forecast horizon (2029) online retail sales are expected to reach nearly 19% of total retail sales. In recent years retail construction, after adjusting for inflation, has averaged $50 billion. That represents a 29% decline compared to the heydays prior to the emergence of online shopping.  Cyclical Change The economy is softening. There is some debate regarding the extent and duration of this softness.  It is, nevertheless, softening as evidenced by -0.5% growth in first quarter 2025 real GDP. This compares against roughly 3.0% growth generated during mid-2024. Retail construction is highly correlated to overall economic performance.  If economic weakness materializes as expected, it will restrain retail construction activity. Weak growth is often characterized by weak consumer spending. Weak consumer spending implies depressed occupancy rates. Depressed occupancy rates typically prompt property owners to lower leasing rates. The combination of lower occupancy and leasing rates imply lower Net Operating Income (NOI).   The risk of bankruptcy is typically higher during slower growing economies and as a result suggests higher bank lending risks. Credit is often tightened during these periods. Indeed, in the recent Federal Reserve Senior Loan Officer Opinion Survey of Bank Lending Practices [2] , nearly 15% of banks have already tightened standards on commercial real estate loans. Further tightening is expected.  Some of the economic weakness is also explained by high prevailing interest rates. Higher rates make it more difficult for projects to achieve the desired return on investment. The combination of lower NOI, tighter lending standards, and high interest rates all signal tough times ahead for retail construction.  During economic downturns, retail construction is hit hard. Since 1980, for every 1% decline in real GDP growth, retail construction eventually contracted nearly 7.5%. One quarter of real GDP decline has already been recorded. Thus far the economy has demonstrated remarkable resilience. May its strength continue. Even the prospects of a downturn, however, will deter some retail construction projects.    Near-Term Outlook Retail is expected to record another significant decline this year. Adverse momentum is often hard to reverse. For a recovery to materialize in 2026, not only do interest rates have to decline, but the conditions impacting NOI have to improve. That means higher occupancy rates, higher leasing rates, and improved NOI. The combination of lower interest rates and improved NOI is expected to usher in a recovery in retail construction. Unfortunately, that whole process will take time to materialize. No recovery is expected soon, and a more modest decline is expected in 2026.   [1]  Included in private nonresidential construction is retail, manufacturing, lodging, office, health care, religious, and education buildings. [2]  Board of Governors of The Federal Reserve System. Senior Loan Officer Opinion Survey of Bank Lending Practices - July 2025 . 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 .

No Improvement in Home Purchasing Affordability in 2025 Overview Since 2020, the average monthly payment for a new home has doubled. On top of that, in some regions, insurance premiums have climbed dramatically. These high costs have deterred ownership. More than 65% of U.S. households own a home. For young adults, that rate is at 39% - down from 45% 20 years ago. First-time homeowners are currently at the lowest level ever. None of these factors are expected to improve during 2025. Indeed, the Administration’s policies on immigration and tariffs may make the cost of building a new home even more expensive – worsening the near-term affordability difficulties facing home buyers. Home price increases will slow but remain elevated. Oddly, interest rates  are partly responsible for keeping home prices elevated .  Many owners of existing homes purchased their homes when mortgage rates were 3%.  At today’s mortgage rates, many of these homeowners will hold off selling their home in place of a new one because they would likely be replacing a low mortgage rate (3%) with a much higher mortgage rate for a new home (7%).    By these homeowners staying in place, the supply of existing homes on the market is reduced. Typically, existing homes account for roughly 88% of all homes on the market. (Newly constructed homes account for the remainder.) Like anything, when supply is reduced, the outcome is high prices. Without a reduction in mortgage rates, a good portion of existing home buyers will remain on the sidelines. Supply will remain constrained. Prices will remain elevated. Policies add to construction cost pressures. Supply conditions could darken the U.S. home price outlook further.  According to various estimates, 1.6 million undocumented persons work in the construction industry. Prior to the clamp down on undocumented workers, it was generally thought that construction workers were in short supply. The crack down on immigration will likely magnify this labor shortage. Undocumented workers offer builders a capable workforce at a lower pay rate than documented construction workers.  Some studies suggest that undocumented workers earn an average of $3 per hour less than documented workers. The average home requires roughly 5,200 manhours to build. If the entire crew were undocumented, that translates into a savings of $16K per home. The entire crew won’t be undocumented – so the savings will be well less.  Nevertheless, undocumented workers help relieve the labor shortage that characterizes the construction industry and can potentially lower the cost of building a new home. Rigid immigration enforcement will reduce the ability to build new homes and add to construction costs.  Tariffs also add to the cost pressures. Roughly $200 billion of imported products went into building new housing units throughout the US during 2023.  Spending includes lumber, lighting, cabinets, tools, appliances and more. Per unit, that translates into roughly $135,000. Of this, 27% of all imported products used to construct a new housing unit came from China.  That translates roughly into $35K per unit. With the new tariff scheme, that cost could add as much as $150K to costs. It won’t because there will be substitution away from Chinese made products. Not all goods used to build a housing unit imported from China will be replaced. Significant cost pressures from the new tariff scheme will add to the cost of building a new unit. New, policy induced factors could add to the cost of building a home. Some, or all, of these increases will be passed onto consumers in the form of higher home prices. Furthermore, the potential for building disruptions loom. Resulting shortages could add to overall home prices.   Mortgage rates aren’t moving much this year… Mortgage rates play a critical role in the affordability crisis facing potential home buyers. Barring a full-blown recession, mortgage rates are not expected to come down meaningfully anytime soon.  Inflation premiums and The Federal Reserve policy are expected to work against lower near-term mortgage rate decreases. The Federal Reserve won’t begin easing until inflation is on a clear path to its 2% target rate. Unfortunately, tariffs raise the prospect of higher inflation. As a result, the Fed is expected to sit until it can assess the inflationary impact. In the meantime, interest rates will only slowly drift lower as demand in the overall slowly economy eases. For the most part, key interest rates, such as 30-year conventional mortgage rates, will remain near the 6.5% to 7% range for most of 2025. The threat of a recession, and the lower inflation it implies, will eventually prompt The Fed to act.  A lot of time has to pass for that to happen.  Even as momentum of the recession/downturn gains strength, The Fed will likely sit. Only after the threat of higher unemployment reaches a level to ensure an easing in inflation, will The Fed act to cut.     A click or two reductions in mortgage rates is not going to improve affordability much. There is a threshold mortgage rate for a meaningful improvement in homebuyer affordability.  I estimate that threshold rate at 5.5% for a 30-year conventional mortgage. Once that threshold rate is achieved, it will ignite a significant recovery in the housing sector. Until that time, modest improvements in affordability will likely take place in the context of a weakening labor market.   Sales and starts are likely at a saddle point – neither rising nor falling much from a depressed 2024 market.  Unfortunately, the threshold mortgage rate that ignite a dramatic recovery is not expected to materialize for another year.  While market conditions can vary greatly among regions, for the US as a whole, this implies another year of wait for homebuyers. Another difficult year for homebuilders and realtors. 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 .

Alternative Scenarios to The Sullivan Report - Cement Outlook Baseline Spring 2025 Forecast Introduction 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 forecast exist – each materializes with even small changes in assumptions. The risks surrounding the Spring Forecast are extremely high. They center on assessments regarding underlying strength of the economy and the headwinds that face the near-term economy. The key assessments include: The impact of administration policies on the economic fundamentals. Federal Reserve monetary policy actions. The strength and resiliency of consumer spending. The Baseline Scenario The “Baseline” forecast is believed to be the most likely scenario that will unfold. The Baseline Scenario has been presented in detail to subscribers of The Sullivan Report: Cement Outlook. To recap, the Baseline Scenario suggests that the economy’s strength is easing. Uncertainty, tariff policies, immigration reform, and DOGE all add to the near-term economic easing.