Interest rate cuts have slowed over the past few months, and as Trump administration steel tariffs are implemented and lumber tariffs loom, the construction industry faces uncertainty related to progress of future projects.

"Construction starts pulled back in January, despite the first round of rate cuts from the Federal Reserve in September and November," says Sarah Martin, associate director of forecasting for Dodge Construction Network. "Inflation has also been stickier than ... hoped for, which will make Fed leaders more cautious in lowering interest rates in 2025." She adds: "All told, projects will continue to move through planning at a snail's pace, possibly undermining the trajectory of nonresidential building starts."

The just-imposed 25% tariffs on all foreign steel and aluminum will also factor into developers' decisions to move forward, says Martin, adding that they "could push up already-high materials prices, altering the delicate balance of go/no-go decisions on projects, while more stringent immigration enforcement could make the shortage of construction labor more dire."

Overall residential sector starts fell 2% year-over-year in January, according to Dodge data. Single-family starts rose 6%, while those for multifamily housing fell 15% from the same time last year.

But Martin says residential work in planning has gained steam, "perhaps indicating a recovery in late 2025." The largest multifamily projects to begin in the past month were the $470-million Ulana Ward Village Tower Building in Honolulu and the $400-million JEM residences at Miami World Center in Miami.

Non-residential sector starts declined 22% for the year. Even data center starts, which have been driving the sector, fell to "more historically typical levels" in January, bringing overall office starts down 21% for the year. Hotel starts fell 21% since January 2024, while manufacturing declined 77%, "suppressed alongside slower demand and labor shortages." The largest non-residential building project to start work in January was the $5-billion children's health and University of Texas pediatric campus in Dallas.

Non-building starts remain strong, up 17% year-over-year. Martin points to utility and highway and bridge construction as the catalyst for the increase, while environmental public works have stayed mostly flat. The largest nonbuilding project to start in January was the $1.1-billion Sequoia solar farm in Callahan County, Texas.

Going forward, these conditions are expected to persist, says Martin. "While the queue of projects piling up in planning is large, developers appear to be concerned about how the economy will fare in the new year and seem unwilling to commit to moving [them] forward."

The steel and aluminum tariffs will "tighten the market," says John Anton, pricing and purchasing director at S&P Global Market Intelligence, which will cause prices to spike before they settle at a modestly higher rate. "If there are any supply shortages, it should be very temporary," he contends.

While only about one-quarter of steel used in U.S. construction is imported, price hikes should settle below 25% overall, says Anton, due to the large amount of domestic steel already produced. But there are some outliers, he notes. Unlike when similar tariffs were implemented in 2018 in the first Trump term, no exceptions were made this time for steel that is not generally produced in the U.S., such as Super 13 Chrome steel used in the energy sector. Prices on those products are likely to rise by 25%. "That is a tax, and it's a tax that will be used to raise revenue, as much as to protect the steel industry," Anton says.

Lumber prices are "very uncertain right now," adds Luke Lillehaugen, senior economist at S&P Global Market Intelligence, due to the 25% tariff on Canada and Mexico planned for early March.

"This would ultimately mean that American importers would pay almost 40% higher prices on lumber imported from Canada because the 25% would be added on top of existing anti-dumping duties," of about 15%, he says. "While the exact magnitude of pricing impacts from tariffs are impossible to predict, higher prices on Canadian lumber [which account for about 20% of the total American supply] will drive prices in the U.S. significantly higher and will be particularly impactful for northern states that border Canada."