ITR's Lokar Says Industrial Production Recession Has Ended

Orlando, FL, January 15, 2025-Speaking at CCA Global's ConneXtion conference in Orlando, Florida, ITR economist Connor Lokar reported that U.S. industrial production--which more closely mirrors the flooring industry than GDP--has been in recession for the last 18 to 24 months, but that is changing.

While the housing market has been sluggish, GPP continued to rise in 2024 due to the performace of the services sector.

"Our outlook is growth for the next couple of years," he said. "So, get excited and make sure you're ready to make hay while the economic sun shines."

Though that growth will be modest, not a return to the pandemic-fueled "hair on fire, kick the door down" spike in 2021, it will be driven more by the consumer than it has been since, when government spending and stimuluses like the CHIPS and Inflation Reduction acts pushed up the nation's GDP. 

Instead of focusing on the GDP, Lokar recommends tracking the ten-year government fund, which is what drives mortgage rates. (Mortgage rates are that ten-year yield plus 2% to 2.5%, typically, he explained.) 

"We think it's generally going to stay near where it is, which means mortgage rates are just going to wait in that high 6%/low 7% range," Lokar said, adding, "We still think you can grow. Consumer incomes are rising. They have caught up to inflation over the last couple of years, and we're seeing that they're building some reserves, and they can afford these higher prices and higher rates. You're going to see incrementally more traffic in your stores as we move through 2025 and 2026."

Existing-home sales, which have declined 30% since 2021, are up 1.7%, and the Remodeling Market Index is improving. Lokar expects that will continue as we move into next year, and he noted that permits for new single-family construction are up across most states, with five points of growth expected this year.

In the meantime, inflation will continue to be a challenge and costs will continue to rise, especially energy and labor costs. Noting that it takes roughly 23 months for the impacts of government spending to show up in the economy, he explained that "the runway has already been set," adding that even if the new administration slashes government spending, the effects won't be seen until 2027.

Lokar predicts sub-3% inflation for the next two quarters, before beginning to rise back toward 3% in the back half of this year and ultimately toward 4% as we move into 2026.