In my misspent youth, I engaged in activities that were ill-advised, including white water canoeing when my skill level was not up to it. There is nothing quite so disorienting as hurtling down a raging river with only minimal knowledge of what is ahead. This is how it feels when trying to navigate the current economy (only without the immediate threat of drowning). What can be projected for the remainder of 2025 and into 2026? Are there any trends that can be counted on? To some degree, there are always constants in the economy—reactions are somewhat predictable. But right now, we are not sure what the triggers will be. 

Inflation

Inflation has been trending lower for the last few years after a surge during the pandemic. The rate climbed to as high as 8% for a few months, and it took several years for the factors driving inflation to fade. For the past year, the rate has been dropping ever closer to the level the Federal Reserve prefers (around 2%). That trend is now reversing as inflation now sits at 2.7%, which equals the rate set in February 2025. This is not a crisis, but it is heading in the wrong direction, and the reason is obvious. 

In February, the rate climbed to 2.7% over fears related to the imposing tariffs, which is also driving it now. By now, we are all weary of the constant tariff uncertainty, but there is no sign of stability, and that has affected prices. Companies tried to beat the tariff hikes by loading up on inventory, but that surplus has largely vanished and reorders are much more expensive. The bottom line is that inflation is very likely to get worse—maybe around 3.5% to 4.5% by year’s end. If this rate climbs as expected, there will likely be a reaction from the Federal Reserve, but not the one advocated by the White House. A hike in inflation will push the Fed to raise rates rather than lower them.

What does the economic growth situation look like? The first quarter numbers were recessionary, and some even went so far as asserting that a full-blown downturn was underway. By the second quarter, the numbers bounced back, and growth was sitting at 2.1%—nearly back to the end-of-2024 level. That Q1 decline was largely attributed to an influx of imports (as businesses attempted to beat projected tariffs). Imports pull away from gross domestic product, and, by Q2, that surge had calmed. 

The next question is what to expect in Q3, and the news is not good. Most projections are for growth at less than 1% (between 0.5% and 0.75%). This is attributed to the slowdowns occurring as tariff uncertainty disrupts supply chains. Consumer confidence has also been falling, and that is bad timing for the retail sector. ECs are already affected by slowdowns in construction, and there has been price volatility in everything from steel, aluminum and copper to cement, lumber and more. Q3 numbers look weak, and Q4 is not shaping up all that well either.

Supply chain concerns

The supply chain has been a problem for several years. The tariff/trade wars have completely altered the supply chain. Businesses have been locked in a battle to rethink the way they supply, and all the options have become more complex and expensive. Projects are on hold pending some kind of price stability, and there has been no sign of this. The tariffs have been used as negotiating tools rather than for economic development, and that makes them ever more unpredictable. They have been used to urge stricter immigration policies, influence the Ukraine war, pressure Brazilian courts and expand control of fentanyl. Most companies assert they can manage tariffs if they know what they are, but uncertainty has made that nearly impossible.

The workforce dilemma

A consistent issue for those in the electrical contracting business is the workforce. There may be some 6 million people ostensibly available to hire, but the vast majority of them lack the skills needed in these sectors. This creates delays as there are chronic labor shortages and wage inflation. This issue will get steadily worse, as by 2030 every single Baby Boomer will have reached retirement age. They won't leave all at once, but attrition has already been a factor. Very little attention is devoted to training for the jobs in construction and manufacturing by the general education system—an issue for many decades.

Consumer attitude

One last trend to think about is the mood and attitude of the consumer. The level of consumer confidence is lower than it has been in many years, but it is important to understand that these surveys are extremely volatile. Consumer attitude can swing radically from one week to the next based on the latest news and reports. Right now, the message from the media is generally downbeat—inflation threats, tariff threats and hints of unemployment. Consumers worry, which generally makes them frugal. That is not what retailers want to hear at this point in the year. Will the consumer mood improve? Is it a waterfall or a calm current ahead? It's  anybody’s guess.

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