Doderer on the economy: US has best path forward despite uneven growth

Growth remains uneven, and capital continues to concentrate. But compared to the rest of the world (RoW), the US continues to have the most stable path forward.

From a steel perspective, this asymmetry is reinforced by the persistence of tariffs and protectionism. They remain deeply embedded in the policy landscape and continue to favor domestic mills.

Entering 2026, the base case is for above-trend growth in GDP (long-term trend is 1.7%). And the balance of risks tilts toward the upside – although the bell curve of risk is flattening.

Key points

Below are several assumptions that frame that macro outlook. Let’s touch on those first before we go into some steel-specific details:

• Economic activity will reaccelerate early in the year, driven primarily by quarter-over-quarter gains in consumption and fixed investment as measured in GDP.

• Interest rates will not be materially lower in 2026, with the 10-year Treasury yield remaining range-bound between roughly 3.75% and 4.75% but rarely dipping below 4%.

• Jerome Powell has delivered his final rate cut, which occurred in December.

• The economy is moving deeper into the shake-out phase of the AI investment cycle, with increasing scrutiny on marginal projects following the initial spending surge.

• Current trade policy is largely entrenched. While the effective tariff rates could moderate (9-15% depending on source), there is little evidence of meaningful de-escalation for industrial goods.

• The rise in unemployment to 4.6% in November is a one-time adjustment tied to federal RIFs and deferred resignations.

• That said, the 54% year-to-date increase in WARN notices (to ~1.17 million) suggests broader labor market softening.

• When you provide assumptions, you have to take a stand. Let’s call this a 60% likelihood for stabilization.

Manufacturing

Manufacturing enters the year treading water from a steel-demand standpoint. The sector has now been in contraction for nine consecutive months per ISM. And there is little evidence that downstream demand improves meaningfully in the opening quarters. That said, the permanence of 100% bonus depreciation is an underappreciated tailwind—particularly for firms whose capital investments went live in 2025 and that begin contributing to output in 2026. For steel, this supports baseline demand for machinery, equipment, and fabricated products rather than a classic cyclical rebound. The larger constraint remains trade policy: with low odds of tariff relief for industrial inputs, elevated costs continue to suppress volume-driven upside.

Construction

Construction remains the most structurally challenged major steel end market. Nonresidential construction spending has declined year-over-year for 11 consecutive months. And the Architecture Billings Index (ABI) has been below 50 (in contraction) for 41 of the last 43 months, signaling a weak project pipeline. The dominant headwind is financing, not policy. Long-term rates remain elevated despite Fed easing, with the 10-year Treasury decoupling from policy rates in a historically abnormal fashion. Today’s 10-year yield is more than 50 basis points above where it stood during the week of the first rate cut in September 2024, marking the first time this dynamic has appeared since the late 1980s. For steel, this caps near-term demand for structurals and rebar outside of public and energy-related projects, where funding mechanisms differ.

Automotive

Automotive demand should show modest year-over-year improvement, driven more by production normalization than a surge in sales. Inventory levels continue to stabilize. And production is expected to ramp moderately even as OEMs pursue a structural reduction in inventories of roughly 35–40% versus pre-pandemic norms. Importantly, current inventories remain well below even those reduced targets under a normal sales environment, leaving room for upside production surprises. This supports incremental gains in auto sheet demand, though affordability constraints place a firm ceiling on total vehicle sales. Discipline, not exuberance, defines the cycle.

Energy

Energy offers one of the more constructive steel narratives—but the driver has shifted. US electricity generation rose an estimated 2.3% in 2025 and is expected to grow another ~3% in 2026. The trend supports heavy investment in transmission, substations, gas-fired backup capacity, renewables, and battery storage. These are steel-intensive builds. At the same time, global crude and natural gas markets face oversupply as production growth outpaces demand, pressuring prices and dampening new drilling. As a result, steel demand tilts toward grid and energy infrastructure rather than OCTG. The primary risks are permitting delays, interconnection backlogs, and cost inflation. And the biggest risk: Any strong correction in AI-related infrastructure investment, because these AI projects sit squarely at the center of increased energy demand.

The takeaway

Overall, although the bell curve of risks continues to flatten, steel/industrials are in a position to continue grinding higher. I know that there is a lot to parse in what I’ve written above. Going forward, I will aim to update each sector sporadically throughout the year and to fill in some deeper context and charts. In the meantime, please reach out if you would like to go deeper.