Strategic Exchange: 2025 wasn’t what we expected – Dec 2025
By Kemp Harr
This time last year, many were feeling optimistic about economic growth for 2025. Not only were we relieved that the election results weren’t being contested, but some also thought that having an administration in Washington that was pro-business would stimulate growth.
Little did we know what was in store for this year. It started with the Department of Government Efficiency, then came Liberation Day and all bets were off on how tariffs would impact pricing and affordability. On the foreign front, we bombed Iran’s nuclear facilities, negotiated a peace agreement in Gaza, and now our Navy’s biggest war ship is in the Caribbean.
Our citizenry hasn’t been this polarized in decades. Some fear the stock market is riding an AI-induced bubble. Congress was shut down for 43 days-the longest in U.S. history. The U.S. Supreme Court is deliberating now on whether the tariff method President Trump has been using to balance foreign trade is even constitutionally legal.
Oh, and the border, through which 12 to 16 million people crossed illegally over the last four years, has been virtually shut down. And the forbearance on student debt and other government loans has ended.
So, how is the economy doing? GDP in the first quarter of the year was negative 0.5%. In the second quarter, it was up 3.8%, and due to the government shutdown, we don’t know yet what it was in the third quarter. On July 4, Congress passed the “Big Beautiful Bill,” which the Congressional Budget Office has estimated will add $3.3 trillion to the national debt over the next ten years.
Another big shift in America’s economy is the expanding gap between the haves and have-nots. Almost half of the spending that drives the U.S. economy is driven by the top 10% of the population.
Closer to home for us in the flooring business, higher mortgage rates and elevated home values have put a damper on existing home sales, which in October were tracking at 4.10 million on an annualized basis. Today, the average 30-year mortgage rate is 6.3%. Inflation has moved the typical price for a home to around $410,000, and the average first-time homebuyer is now 40 years old. In contrast, most Baby Boomers were able to buy their first home in their late 20s or early 30s. Some pundits estimate that the only way to get housing numbers back to the healthy six-million-unit rate is to get mortgage rates down 100 basis points and for the average home value to drop to around $350,000. Neither of these two things is likely to happen, although we continue to see a rise in inventory of unsold homes.
The latest employment numbers are showing some weakness, which could incentivize the Fed to lower interest rates another quarter point in December. ITR Economics is forecasting the inflation rate to rise by the middle of 2026, so we aren’t likely to see many rate cuts next year. Only time will tell.
On the commercial side of the business, the Architecture Billings Index has been below 50 since October 2024. Fortunately, the backlog of work has been keeping commercial contractors busy. Despite the headwinds in the commercial real estate business, many Starnet and Fuse members continue to see growth. The healthcare and education sectors continue to drive much of that demand. Don’t miss our detailed report on the commercial contractor’s business starting on page 65.
CONSUMERS AREN’T COMFORTABLE
In November, the University of Michigan’s consumer sentiment reading was 51, a decline of nearly 5% from October’s 53.6. In fact, this year’s sentiment high came in January at 71.7 and never again rose above 65.
This is a contrast from what we might call the “good old days.” In January 2000, the sentiment reading hit a record-high 112, with the late ’90s and early 2000s regularly chalking up annual averages in the 100s, 90s and high 80s.
The fact is that today, many Americans don’t feel like the economy is working for them. With more than half of households now dual-income, continued inflation on basic goods and needs means that even double the dollars isn’t stretching far enough to set consumers at ease. For many, it still feels like they are one crisis away from being upside down.
According to a Yahoo Finance article from September, only 18% of Americans earn more than $100,000 annually, meaning the chasm between the haves and have-nots continues to widen. The many in the “have-not” seats have plenty to worry about, and the 43-day government shutdown did anything but buoy their confidence.
That said, holiday spending is expected to top $1 trillion this year for the first time ever, with the National Retail Federation president and CEO Matthew Shay saying, “We remain bullish about the holiday shopping season and expect that consumers will continue to seek savings in nonessential categories to be able to spend on gifts for loved ones.” For many, this will mean facing 2026 with holiday-related debt, but they could defer any renovation plans. n
For comments on this column, email kemp@floorfocus.com.
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