A Quick Economic Tour: GDP, Housing, Oil, Material, Labor

At one point earlier in the quarter the numbers looked promising, and some asserted that 2.5% was possible. That was before the Iran war and the oil crisis, and now the economy as a whole is limping at the slowest pace seen since Q1 2025.

GDP numbers were volatile all last year. They were very low (0.5%) in Q1, but they bounced back to above 3.0% and nearly 4.0% in Q2 and Q3 before taking a late-quarter dive in Q4. Many factors were at work, everything from the impact of tariffs to the government shutdown and trade wars. The data for Q1 of this year looks promising, but the Iran war started to pull on that GDP estimate toward the end of the quarter. It has been perking along at around 2.4%, but the latest estimate has it down to 1.3% because of the fuel crisis, and that does not bode well for Q2.

Housing. Housing starts showed some solid growth at the start of the year. They were up 7.2% over December of last year and 9.5% over the previous year. The pace of multifamily housing was the driver, with a remarkable gain of 29.1% compared to a slight decline in the pace of single-family construction (down by 2.8%). That took place during the period when the 10-year bond yield fell slightly below 4.0% and mortgage rates fell a bit.

Raw Material and Logistics. The supply chain woes have been front and center for weeks now, and the prospect for more disruption is high. The Iran war has affected global supplies of oil, petrochemicals, precursor materials, and fertilizer. Add in the confusion over tariffs and there is spectacular variability across the supply chain. The most immediate pressing issue (beyond shortages) is the threat of much higher prices. Inflation has already hit the transportation sector with hikes of close to 5.0% over last year. Capacity is strained. The load-to-truck ratio has not been this high since the pandemic. There are now 80 loads for every flatbed truck, and that leads to very high pricing.

Labor. The latest reading for the Employment Cost Index was growing at a somewhat accelerated pace. It was up 0.7% in Q4 2025 and up by 4.3% for the year. That pace is expected to hold in Q1 of this year. Most of the increase has been accounted for by the medical sector, but there have been major hikes in construction and manufacturing depending on the skill level involved. Labor shortage is acute even though 7 million people are looking for work. They lack the skills needed, and skilled workers are in short supply.

Manufacturing. The S&P Global PMI has been showing solid global activity. Most nations are now in the expansion category, and only four are in contraction. The U.S. is at 52.3 and Canada is at 50.0. Mexico has slipped a bit from the 50s to 48.9 this month. The expectation had been that trade wars would drag these numbers down, but that has not been the case thus far. Asia is doing better than Europe. China has a PMI reading of 50.8 despite the restrictions on selling to the U.S., but that is down from the previous month’s reading of 52.1.

March marks the first PMI report with panelists citing the Iran war as a new impact to their business, along with ongoing uncertainty with U.S. economic policy, despite the recent Supreme Court ruling striking down IEEPA tariffs. In April, 64% of comments overall were negative. Among the negative comments, about 20% cited tariffs and about 40% the Iran war.

Oil, Oil, Oil. Oil still propels the world in both obvious and subtle ways. As of this writing, there was a breakthrough in the Iran war, a ceasefire between the Hezbollah and Israel in Lebanon, but it started to collapse almost immediately. This involved Iran, as it supports Hezbollah. This truce opened the Strait of Hormuz to traffic. Oil prices fell by 11% immediately.

Bonds. The “magic number” for the yield on the 10-year bond is 4.0%. There is no hard and fast rule here, but the mortgage markets respond. When the yield drops below 4.0%, more aggressive mortgage activity ensues. Right now, the yield is above that line, and it must retreat before there is another mortgage surge.

What Does This Mean for Manufacturers? There is still evidence of growth, but weakness is clear as most of the numbers have started to show mild contraction. The crucial problem is that politics has become the driver. Consumers are still willing to spend, and businesses are still willing to expand, but there are too many political unknowns.