Noah’s Quarter 3 Economic Update
Hey PEG Members! Welcome to the Q3 installment of our 2025 Economic Outlook. Currently, you find me in an optimistic mood regarding the economy and a cautiously optimistic mood for the construction industry. Our sources at Dodge Construction, ITR Economics, our Financial Benchmarking Results and TM Capital all find us in a recovery from initial tariff concerns and project an auspicious end to 2025 and beginning of 2026.
“Following the months of uncertainty due to tariff concerns, owners and developers have started progressing with projects while accepting higher costs. Given the persistent economic and fiscal uncertainty, volatility in planning activity will remain high.” – Sarah Martin, associate director of forecasting at Dodge Construction Network.
“Financial conditions are conducive to growth. The money supply is increasing and banks are lending at an increasing rate, so the liquidity is there. Credit risk premiums are relatively low, suggesting that banks are not particularly worried about a recession. Consumers and businesses are handling their debt relatively well, with relatively normal delinquency and bankruptcy rates, and have room to take on more debt.” – ITR Economics, Executive Summary, September 2025 Report
This report focuses on the changes in the current construction markets, supply for equipment, current equipment value reports, the labor market, and strategies for the rest of 2025.
Demand: At a low in the residential and commercial markets, but growth in nonbuilding construction
Dodge Construction found that total construction starts were down 10% in July from June. The biggest drops were in the nonresidential and residential building sectors, with nonbuilding construction growing 20.4%. This is not cause for total concern; however, as Year-to-Date (YTD) total construction starts are above year ago levels.
This sentiment – and squeeze on equipment suppliers - is described by Lawrence H. Silber, President & CEO of Herc Rentals “The local markets continue to see pressure as more commercial projects come to completion, while new projects in that sector remain on pause due to prolonged higher interest rates.”
Focusing in on project types, TM Capital reports, “equipment demand continues to be driven by mega projects, particularly those focused on Liquified Natural Gas (LNG), data centers, and the reshoring of manufacturing in select industries. These factors are reflected in a revised 2025 growth forecast from the American Rental Association of 3.9% (compared to 4.2% previously).”
ITR Economics reflects this, noting that non-residential buildings (US Private Warehouse Construction and US Private Office Construction Excluding Data Centers, among others) tend to be in recovery or in decelerating growth, with greater growth and/or softer landings projected for the coming years. This is in comparison to the residential sector, where the last twelve months of single-unit housing starts are below the levels of the year prior (a negative 12/12 for those familiar with the Rate of Change). Multi-unit housing stands out with a positive and accelerating 12/12. Find below ITR’s current analysis on various construction sectors as well as projections. As a key, green represents accelerating growth; yellow, decelerating growth; red, recession; blue, recovery.
Demand: Optimism for the future on large, non-residential projects as well as multi-unit housing
After facing the tight pockets of the first half of 2025, Dodge Construction has found that the construction industry is getting used to the increased prices from the tariffs. In general, they found that the Dodge Momentum Index grew 8% in August. “The Dodge Momentum Index is a three-month moving value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year to 18 months.” This calls for optimism regarding construction activity in late 2026 or early 2027 regarding the commercial and institutional building sectors. The current trending projects are related to data center, warehouse, hotel, and automobile industries.
Lawrence H. Silber, President & CEO of Herc Rentals states, “We are operating in a disproportionate demand environment where the local market remains affected by interest rate sensitive commercial construction, while mega project activity continues to be robust…”
In addition, TM Capital reports, “While tariff-related uncertainty remains, public companies have navigated the environment with minimal disruption. Executives remain optimistic about full-year performance, supported by proactive strategies such as early purchasing, leveraging OEM programs tied to non-tariff pricing and increasing domestic sourcing. Additionally, recent trade agreements between the administration and key partners have helped ease some of the uncertainty. Rental offerings continue to serve as an effective alternative for price-sensitive customers, with established fleets helping to mitigate short-term pricing volatility.”
Supply: Construction machinery value growth projected ahead
ITR Economics found that US Construction Machinery New Orders rose in June; however, the 12-month running total was still 1.6% below the year-ago level. They project that there will be growth in this sector due to the ease of supply chain constraints, rising interest in using capital to make efficiency gains, and increases in US Construction Machinery and Equipment Producer Prices.
US Nondefense Capital Goods New Orders (orders of the raw parts that go into manufactured pieces) were up 1.4% from the year-ago level. This is a strong leading indicator of growth in manufacturing. ITR Economics projects growth, but is weary of possible headwinds, most specifically, policy volatility. ITR warns: “Some buyers may try to hold out for lower interest rates. We caution against this approach, as a significant decline in long-term interest rates is unlikely. Instead, buyers should focus on maximizing ROI with interest rates remaining near the current level in the near term and likely rising in the coming years.”
Rouse is in accord, showing that equipment value has been rebounding from a low around Dec 2024.
The labor market: Tight, but a good time for hiring
ITR suggests that owners “aggressively pursue efficiency gains. The labor market will remain relatively tight as more baby boomers retire, and legal immigration levels are too low to fill the gap. Plan for slightly higher cost-of-living adjustments next year as inflation accelerates. Lower Quit Rates suggest that confidence in the labor market is low right now, so you may have a better pick of the labor pool if you hire sooner while sentiment is weak.”
Through the year, our members have struggled with finding specialized labor, specifically mechanics, as well as relying on H2B or similar programs.
Strategy for next year: Look for growth!
ITR suggests that owners “set more ambitious goals for 2026. You do not want to aim too high and hurt morale by falling short, but the evidence is supportive of mild to moderate acceleration next year. Leave the pessimism in 2025 and get your sales team excited for 2026.
RE: Pricing - “Try to pass along price increases in a timely manner but closely monitor the market reaction to ensure you are not losing share.
RE: Product Mix – “Identify the demographics of your primary end users, even if they are a few steps downstream, and where you fit in relative to substitute goods. Adjust your product mix and marketing accordingly. Some price sensitivity is likely to linger, so know what your customers value.”
RE: Technology - Matthew J. Flannery, President & CEO of United Rentals noted that, “we continue to enhance our advanced telematics offering, which helps customers operate even more efficiently. By utilizing the unique functionality of our telematics and total control software, customers can realize meaningful savings across all their fleet needs.”
Through the exploration of the supply and demand in the construction and machinery markets, labor market, and strategies ahead, I am excited for the rest of the year and the coming years in the industry. If you would like any further analysis feel free to reach out to Dan (dcrowley@peerexecutivegroups.com), Charlie (cpetersen@peerexecutivegroups.com), or I (ncrowley@peerexecutivegroups.com) for more information! Thanks for reading and wishing you success in the rest of 2025.