Savannah Chamber

13 7 onset of the pandemic. Hence, the delivery of projects in the development pipeline does not hurt the prospects for office construction to the extent that it did in the wake of the Great Recession. Even though consumers' spending on goods recovered quickly and is well above pre-pandemic levels, retail is overbuilt and under demolished. The abundance of retail space will limit new retail construction, but some will occur in places that benefited from heavy in-migration of teleworkers and retirees. Financing to build new retail space will be difficult to obtain, but some will be available for the repurposing of retail space in good locations. The success of online retailing decreases the need to build shopping centers and stores but increases the need to build distribution centers. Industrial development will be focused on locations with logistical advantages. Public sector spending for nonresidential construction will increase faster than private spending for nonresidential construction. Revenue collections by state and local governments held up better throughout the pandemic than initially feared. In addition, federal government transfers to state and local governments were massive. Many state and local governments recognize that recent revenue gains are unlikely to be repeated and therefore direct revenue surpluses to one-time uses, such as construction projects, rather than to continuing obligations such as hiring permanent staff. Construction spending by local governments will increase faster than such spending by state governments due to local governments' high reliance on property taxes. Courtesy of the housing boom, many local governments' property tax digests are soaring and will continue to do so. In contrast, nonresidential property tax digests will grow, but slowly. In most jurisdictions, overall property tax digests will benefit from upward adjustments in assessed residential property values, but jurisdictions with high proportions of office and retail properties may not see much overall growth in property tax digests. Typically, assessed property values lag movements in market prices by several years. In 2025, property tax bases therefore will benefit from recent strong increases in residential real estate prices. In contrast, local governments' property tax bases in jurisdictions tilted towards commercial real estate or office buildings will be less supportive of revenue collections and in turn public construction. Businesses' Spending for Equipment & Software We expect spending for equipment and software to increase by about 3 percent in 2025 compared to 4 percent in 2024. Slower economic growth will reduce both confidence and cash flow. In the wake of the 2023 mini-banking crisis, lending standards have tightened and will not loosen appreciably in 2025. We expect banks to maintain a risk-off stance. High interest rates are a negative for investment spending, more so for equipment than for intellectual property. High labor costs coupled with slower top line growth will squeeze corporate profit margins, which will be a headwind for investment spending. Capacity utilization will be 77 percent, which is too low to stimulate stronger investment spending. Another negative is that many companies took on a lot of debt during the pandemic. Companies refinanced older debt to lower interest expenses and push out debt maturities, but often bond issuance exceeded the amount of debt retired. High interest rates will encourage deleveraging, which reduces funds available for investment spending. Of course, many companies are sitting on accumulations of cash which could simultaneously allow for higher investment spending and deleveraging. On the positive side, the pandemic accelerated technology-centric trends ranging from remote work to online shopping, to mobile banking, to telemedicine, and to video conferencing. These developments support spending for equipment and intellectual property and make such spending less cyclical than in the past. The accelerated adoption of existing technologies, tight labor markets, and competitive pressures will push businesses to spend more for equipment and intellectual property. Once the economic slowdown is over, businesses' spending on equipment and intellectual property therefore will be a powerful driver of US GDP growth. An imperative to improve productivity will support such spending. International Trade In 2025, the global economy will grow more slowly than in 2024. That is partially due to our expectation that tariffs will increase substantially. International trade therefore will provide less support to US businesses. In addition, in too many countries, taming inflation did not occur quickly, which delays easing

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