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Top Takeaways

• Inflation is not over—Businesses should prepare for sustained cost pressures.
• Global and domestic forces—Tariffs, trade and nationalism will shape supply chains and pricing.
• Strategic action needed—Companies must invest in technology, cost control and future-proofing.

Is the worst behind us? As economic uncertainty begins to fade, Connor Lokar of ITR Economics offered a data-driven perspective on what lies ahead. In his annual economic forecast, “Gearing Up for 2026,” Lokar cut through the noise to reveal a clearer economic outlook of the next business cycle through mid-2025 and into 2026—one shaped by rising industrial production, stabilizing construction backlogs, and strategic opportunities amid inflationary pressures. With rates-of-change analysis and global trends pointing toward a cautiously optimistic outlook, the data tells a compelling story: while challenges remain, the foundation for growth is already forming.

“The economy is not collapsing today, and it’s not going to collapse tomorrow. It is not going to collapse next year,” says Lokar. “For the first time in basically two years... we have positive growth. The economy is growing. It’s not going to stop growing. It’s going to accelerate in 2026.”

Beyond the Noise: A Clearer Economic Picture for 2026

Lokar’s message is clear—don’t let headlines and political distractions cloud your strategic vision. His forecast emphasized the importance of focusing on economic fundamentals and leveraging reliable forecasting tools that allow businesses to plan with confidence, even in a volatile environment. Lokar highlighted the use of rates-of-change analysis, which helps define and anticipate shifts in the business cycle, offering early signals for strategic pivots. As of mid-2025, the data suggests that the economy is entering a phase of recovery, with industrial production expected to grow modestly through 2026.

The Data Tells the Story: Construction, Inflation, and Opportunity

The construction sector serves as a microcosm of broader economic trends. Lokar pointed to diverging paths within the industry: single-family housing is poised for a rebound in 2026, while multi-family and nonresidential construction face continued softness. Yet, not all segments are slowing—data center construction is booming, with growth exceeding 40%, making it a bright spot for investment and development.

Backlogs are stabilizing, and the Architecture Billings Index has been signaling a shift since early 2024. These indicators suggest that while the sector is navigating headwinds, the worst may be behind it. Lokar encouraged businesses to be geographically specific in their planning, noting that population growth and regional dynamics will play a critical role in shaping demand.

Inflation remains a central theme. While the easing of price pressures seen in 2023 and 2024 may be over, Lokar warned that costs are rising again, especially in construction inputs like lumber, structural metals and labor. CPI and PPI are both forecasted to climb in 2026, reinforcing the need for robust cost management strategies.

Strategic Imperatives for the Next Cycle

Lokar’s advice is both pragmatic and forward-looking. He urged companies to:

• Digitize and embrace AI to stay competitive.
• Develop inflation strategies that go beyond short-term fixes.
• Focus on cost control and margin protection, especially in asset-heavy sectors.
• Plan for a pivot between 2028 and 2032, when demographic and fiscal pressures may reshape the landscape.

He also cautioned against expecting dramatic interest rate cuts in 2025, noting that government spending and rising debt levels are likely to fuel long-term inflation. With the US requiring 18% of its revenue just to service interest payments, the fiscal outlook remains a concern.

Conclusion: Clarity Through Data

Lokar closed with a call to action for leaders who want to navigate the next phase of the economy with clarity and confidence. By focusing on the data—not the noise—businesses can position themselves for resilience and growth. “Most businesses in this room are going to have a better 2026 than they’re going to have here in 2025, and I want to make sure that you’re ready for that,” Lokar says. “A lot of businesses are going to go under... and a lot of people are going to make more money than they’ve ever made before. This is an opportunity if you see it coming. Be the buyer, not the buyee. Leverage that. Grow your business... and be ready to attack 2030 and not fall victim to it.”

The message is optimistic but grounded: the worst may be behind us, but the path forward requires strategic foresight, adaptability, and a commitment to informed decision-making.