Strategic Exchange: Tariffs and persistently high interest rates will likely impact the economic outlook – March 2025

By Kemp Harr

It was probably wise that the Academy of Motion Pictures Arts and Sciences coached Conan O’Brien to keep politics out of the Oscars presentation-advice I should heed as I sit down to write this column.

It’s a dizzying experience to keep track of the sensational news from Trump’s second term as president. Every day brings another surprising headline: the “Gulf of America,” English named the nation’s official language, bans on paper straws and low-flow toilets, who started the war in Ukraine, athletes who were born male can no longer compete against female athletes. I can’t name all the rapid changes, and most have no bearing on the health of the flooring industry.

However, as a publication focused on flooring, for which more than half the products consumed are made in a foreign country, tariffs are certainly an area we monitor, so we can keep you informed. There is no denying that increased tariffs will inflate prices and push the Fed to delay any future declines in borrowing costs. We recently reported that Shaw is increasing prices 7% on products it imports from China, and Trump has announced plans to increase tariffs on Chinese imports another 10%-taking the total flooring tariffs to over 40%.

We also keep an eye on decisions that will impact the economy, employment and, more specifically, the affordability of homes and commercial buildings. This is the third year in a row in which economists are foretelling a stronger second half, and, at this point, I’m wondering what change might bring this economic boost.

Let’s review the recent headlines. Consumer spending, which accounts for more than two thirds of demand, declined 0.2% in January. Pending U.S. home sales hit a new low in January. Inflation rose 3% in January. Housing starts declined 0.7% in January on an annual basis. The Architecture Billings Index for January rose one point to 45.6 but remained below 50, indicating a decrease in billings. Consumer sentiment declined 9.8% in February-representing a 15.9% YOY decline. And finally, construction starts slid 6% in January.

As we start the third month of Q1, we’re seeing no indication that interest rates are going to moderate and stimulate the type of construction activity and existing-home sales required to increase flooring demand. Fortunately, many businesses are comping against weak numbers from last year, so even a minor uptick is seen as favorable.

Recent activity by the Department of Government Efficiency (DOGE) to shrink the size of the federal government in the near term is going to create a high level of unemployment, and with fewer workers, GDP will be negatively impacted. Some of this fat-cutting in Washington may be warranted, but moving too quickly could put the economy in a ditch.

What effect will all of this have on Wall Street? Last week, Warren Buffett of Berkshire Hathaway published his letter to shareholders. Most people know that Buffett is an optimist, but we’ve all made note of his $344 billion cash reserve-assuming this is a sign that he’s foreseeing a stock market correction. But in his letter, Buffett tells shareholders, “The great majority of your money remains in equities. That preference won’t change.”

FUSE ANNUAL MEETING IN ORLANDO
Just about press time for this issue, the Fuse Commercial Flooring Alliance started its annual meeting in Orlando, which attracted 550 attendees-up 100 from last year’s meeting in Phoenix. Geoff Gordon recently celebrated a milestone birthday and yet kicked off the meeting with a tremendous amount of energy. The group now has 183 members, and while the growth momentum in the commercial market tapered off a bit in 2024, the members backlog of work remains healthy. We’ll provide more coverage of this event in our April issue.

THOMAS TRISSL ANNOUNCES DEPARTURE FROM HPS SCHÖNOX
Thomas Trissl, founder and CEO of TMT America, and his team received a standing ovation after announcing to the Fuse members he is stepping down and sharing the news that Sika was taking over the day-to-day operations for HPS Schönox. Fourteen years ago, after selling Centiva to Tarkett, Thomas negotiated an agreement to build Schönox’s business in America. At the time, Schönox, a German manufacturer of floor leveling and sub-base prep products, had a strong business in Europe but had never ventured into selling its product into America.

Under Thomas’ leadership, HPS Schönox has not only built a distribution network and grown the Schönox business but also raised awareness of the need for self-leveling systems as a sub-base for resilient flooring. Although Sika purchased Schönox in 2013, Thomas and his team continued to build the brand and its business until now. In the short term, Thomas has agreed to serve as a consultant to help Sika with a smooth integration of the business into Sika’s other USA businesses.

The big question is, what’s next for TMT America and its entrepreneurial leader?

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

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