Greetings. As promised, here are 6 economic highlights as we start the year. 2024 ended better than expected, and 2025 is beginning with a lot of uncertainty. Consumer sentiment is good though there is legitimate fear of price increases ahead. That said, businesses, particularly manufacturers, are expressing real concern for the direction of Minnesota’s – and the country’s – business climate. Particularly as it relates to potential tariffs ahead.
CPI and Labor Market Data. CPI: 2024 in review. The Consumer Prices Index for all items rose 2.9 percent from December 2023 to December 2024. Food prices increased 2.5 percent, reflecting a 1.8-percent increase in prices for food at home and a 3.6-percent increase in prices for food away from home. Although this uptick is far below the peak inflation rate of 8.9% in June 2022, it is still higher than the Federal Reserve’s goal of 2% annual growth. In addition, the inflation rate is moving in the wrong direction. In year-over-year terms, inflation has been rising since its low of 2.4% in September 2024. The highest increases? Eggs, motor vehicle insurance, airline fares, utilities (gas service), housing. Remember: in order to bring inflation down, the Federal Reserve began its tightening cycle in March 2022 by increasing interest rates. At the time, topline inflation was 8.5%. When the Fed was done with its increases in August 2023, the federal funds effective rate stood at 5.3% and inflation was 3.7%. The Fed has a dual mandate of price stability and maximum employment. On the labor front, the U.S. economy in this period moved from a hot labor market to a cooling one. As inflation approached the Fed’s 2% goal and the labor market (at least according to some indicators) began sounding alarm bells, the Fed began its easing cycle in September 2024 and lowered rates by a total of 100 basis points by the end of 2024. The final unemployment rate for 2024 was released on January 10, 2025 and better than expected figures pushed out the already lowered prospects for further interest rate cuts for 2025 (with some market watchers even bringing up prospects of interest rate hikes). Although the Fed bases its interest rate decisions on government data that has already been released, the Fed Board committee members have voiced risks related to changes to trade policies and immigration policies. The incoming Trump administration has campaigned on sweeping tariffs as well as deporting undocumented workers. Both of these policies – if implemented – could push the inflation rate higher, the former through higher prices that American consumers would pay for imported goods and the latter through downsizing the available labor pool – especially lower-wage workers – that maintain and provide the goods and services consumed. An additional early 2025 inflation risk seems to already have been averted, with the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) announcing a tentative 6 year-deal that would prevent the closure of East and Gulf coast ports. While supply of goods — in aggregate terms – has not been a contributor to price pressures lately, the absence of this deal, coupled with increased shipments ahead of possible tariffs could have altered that dynamic. Where to in 2025? Risks are clearly pointing up for inflation. Although inflation is growing at a lower rate relative to the last three years, price levels are still high. High price levels are painful for U.S. consumers – especially for those whose wages have not kept up with the pace of price increases – it is particularly difficult to afford essential purchases. In the face of high prices, consumers may choose to delay certain purchases, seek a cheaper option or even in some cases walk away from a purchase, which is typically more common for discretionary goods and services. However, for the case of essentials, such as housing or food, walking away is a harder task. Is Inflation Making a Comeback in 2025? Although inflation has significantly eased from its peak in June 2022, potential risks loom due to policies proposed by the incoming Trump administration. Even in the absence of these risks, consumers—particularly those whose wages have not kept up with inflation—continue to grapple with elevated price levels. This has led many to make increasingly difficult trade-offs to afford essential goods and services.
------------------------------- U.S. Consumer sentiment is on the rise. Especially after the presidential election in the U.S. consumer sentiment ticked up. At the same time, sentiment for Democrats and Republicans swapped, with Republicans becoming more optimistic and Democrats more pessimistic. I regularly refer to Morning Consult for my research. Morning Consult’s Index of Consumer Sentiment replicates the University of Michigan Index with three questions that are forward looking and two that measure current conditions. This composition contributes to recent Republican consumer sentiment growth and simultaneously Democratic consumer sentiment declines as both constituents look out to 2025 and beyond. ------------------------------- U.S. Chamber’s 2025 State of American Business Event, during which CEO Suzanne Clark laid out the business community’s priorities for the upcoming year: “The State of American Business is local, because businesses serve people where they are,” U.S. Chamber President and CEO Suzanne P. Clark said in this week's State of American Business 2025 keynote address. Every community wants “the economic growth that provides the quality of life and promise of opportunity that all Americans desire." Watch now: The State of American Business 2025. Why it matters: People feel the impact of economic growth at the local level because that’s where they live their lives and interact with businesses large and small.
------------------------------- Manufacturers express 'fear of recession' in statewide survey Dread: 2024 State of Manufacturing® - Enterprise Minnesota as of November 2024: Manufacturers express unprecedented anxiety about the economy amid the burden of new legislative mandates. An alarming trend line in the past four years has been a growing percentage of manufacturers who believe that the Minnesota business climate is worse than before. In this year’s State of Manufacturing® (SOM) survey, a record-high 56% of respondents note that it’s worse, up from 50% last year and 15% five years ago. This year, 30% believe the business climate has held steady and 12% think it’s better — a decline from 2021 when 20% thought it was better. “The last time we saw numbers like this the economy was falling off a cliff. This is the highest percentage of people who feel that the business climate of Minnesota is worse since the Great Recession in 2008,” says Bob Kill, president and CEO of Enterprise Minnesota. “When manufacturers see revenue down and profitability down, then capital expenditures trend down. That means they don’t have confidence, so they won’t invest long term. They will invest less in technology and invest less in people.” ------------------------------- Wells Fargo CFO says office market fundamentals “remain weak.” Looking for the Fed’s lifting of the asset cap to stimulate growth. Twin Cities homebuilding gained ground in 2024 despite high mortgage rates
“Interest rates had a big impact on homebuilding in 2024,” said Art Pratt, 2024 board chair of Housing First Minnesota. “The affordability issue is a real problem.” As of last week, the average 30-year fixed-rate mortgage rose slightly from earlier in the month to 6.93%, according to a weekly Freddie Mac survey. Pratt: “While the housing market has faced challenges [in 2024], the recent uptick in construction of all types of housing shows there’s still momentum in the market as we head into 2025,” referring to a strong December for permit issuance. Key real estate trends to watch in 2025 - Minneapolis / St. Paul Business Journal 2024 brought a year of mostly modest changes for owners, operators, developers and users of real estate, particularly in the latter half of the year, as the Federal Reserve began issuing interest-rate cuts. Those moves had been long awaited by both commercial and residential real estate industry groups, with the high cost of debt having iced a lot of deal activity in 2023 and 2024. A thawing is widely expected to occur in 2025, as dry powder sitting on the sidelines readies to deploy capital into buying, selling and building real estate this year. How much of a thaw will occur is hard to predict, though. A number of variables are poised to impact how real estate decision-makers assess their investments and risk appetite this year. The office market continues to be the biggest storyline when considering the major asset classes in CRE. Leasing activity remains sluggish, although much depends on metro area: Absorption began to turn positive in a few cities toward the end of 2024, and some places even saw their vacancy rates inch downward. Still, a mountain of debt backed by office properties that've seen big drops in value will continue to be a headache for office owners and lenders — in 2025 and beyond. Prediction 1: Trump's policies will impact CRE decision-making Prediction 2: Office will see some green shoots, but they won't erase the most pressing challenges facing the market Prediction 3: Housing will face the same challenges it's had since the pandemic Prediction 4: Data centers will continue to be a source of growth — and contention Prediction 5: It's a time of resetting and rebalancing for many CRE sectors See you in the trenches, B How is the economy affecting your business? Let the Minneapolis Fed know
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![]() Let me be among the first to invite you to our 2025 Annual Meeting because registration is now open! Our theme this year is “The Power of One: One Introduction. One Individual. One Initiative.” We understand that both business and politics are local … So, too, are the fundamentals of business relationships. Our speakers will talk about how they’ve invested in just one – or how they’ve benefitted from the same. Each of us as the opportunity to make a difference, in our specific areas of responsibility. Their examples will empower you as well! Our 2025 Annual Meeting Speakers Include:
Speaking of big events, last week the MN Chamber hosted another great Session Priorities event. This year, at least, the tension between the Democrats and the Republicans was acknowledged. It promises to be a challenging session this year. Minnpost said it best: “Minnesota leads again: No other state has ever begun a legislative session without clear majorities.” This is “Minnesota exceptionalism” at its worst. You can track the session and our work through our regular Government Affairs newsletter – in it you get updates on our policy work and that of important partners like the MN Chamber. Sign up to receive Advocacy News and other Chamber communications. One other important update: last week we send a link to this short survey that will help the Minneapolis Fed and its local partners understand the impact that the economy is having on your business. You know how much value I place in the Fed’s work. They need regular and direct input on your challenges so please take the survey today! Next week my blog will focus again on the economy. As the new year begins, we are receiving a lot of updates on the pace of home building, the direction of business, inflation, and pricing. Stay tuned! See you in the trenches, B Three highlights this week, all good. First, in case you missed it: in partnership with The Harris Poll, our national chamber association, ACCE, conducted a nationwide public opinion poll to explore U.S. adults’ perceptions of their local chamber of commerce, the role chambers play in their communities and the value of chamber membership to businesses. The results were very validating: 81% of U.S. adults agree that local chambers of commerce are a trusted resource/partner for business; and 91% believe that their local chamber has an impact on growing businesses locally. Shakopee Chamber wrote a nice article on the results. and we’ll be sharing more on our social media as well. Also, the Saint Paul Downtown Alliance officially launched the Downtown Improvement District into Lowertown and the entire eastern half of downtown Saint Paul on January 1. I’m very excited to see expanded services and even more ambassadors – they are making a real difference, both in visitor experience and public safety outcomes. And finally, from the Met Council: the Met Council is expanding its efforts to provide a consistently safe, clean, and welcoming experience on Metro Transit bus and rail service this year. The Met Council's 2025 budget includes funding to grow the Transit Rider Investment Program, expand the use of supplemental security officers, partner with community-based organizations, and bring on more police officers and community service officers. Learn more about the expanded efforts. Also, travelers in the East Metro have another transportation option as of Monday, Jan. 6. The Met Council and Metro Transit have expanded the on-demand shared ride service, Metro micro, to serve areas in Woodbury and Roseville. The new small-bus service will connect residents with key destinations and transit hubs in the two communities. More about the expanded service. How is the economy affecting your business? Let the Minneapolis Fed know.We are partnering with the Federal Reserve Bank of Minneapolis to give local businesses a voice. Your response to this short survey will help the Minneapolis Fed and its local partners understand the impact that the economy is having on your business.
Answers to these questions contribute to regional data that directly inform the Minneapolis Fed, local partners, policymakers, and others — a public good ultimately benefiting your business and others like yours. Take the survey today! Thank you in advance for your participation. See you in the trenches, B Happy new year all! I hope you found the opportunity to recharge over the holidays. And I hope to see you at our first big event of the new year, our annual Breakfast With The Mayors on Jan. 21st. This year, Tom Hauser from 5 Eyewitness News, talks 2025 challenges and priorities with St. Paul Mayor Melvin Carter and Minneapolis Mayor Jacob Frey – reserve your seat now. Looking at 2025, there are several new policies and tax increases that promise to have significant impact, especially on small businesses. Your chamber is facing these as well and like you, we are feeling the pinch. Higher minimum wages, new health insurance mandates, increased unemployment insurance costs and an inflation-adjusted gas tax all took effect Jan. 1st in Minnesota. Business experts say these laws will hit small businesses the most, especially outstate, and they worry about the collective punch of so many changes at once. Which is why I would like to personally invite you to the Politics at the Pub Fundraiser hosted by St. Paul Area Chamber Political Action Committee – Thursday, Jan. 9th. Your involvement is key in helping us elect candidates and advance policies that empower our region and support the business community we all rely on. This is a good article from the Minnesota Star Tribune, summarizing: As new laws take effect in Minnesota, small businesses say costs will sting. “After a year of inflation and uncertain economic conditions, new Minnesota laws add another layer of expenses that are making some businesses embrace decisions that favor stability over growth.” A business owner is quoted as saying: “business owners are making decisions based on this. From less hiring, to exploring mergers, to other cost-saving measures. Which, by definition, impedes the ability to say yes to new jobs.” Summary of some new policies taking effect on Jan. 1 include:
As it relates to Saint Paul specifically: minimum wage rates increase in the City and the wage theft ordinance took effect on Jan 1 as well. And, finally, interested in who’s working from home in Minnesota? Our remote workforce has unique traits that set it apart from the overall working population, find out more in the Fed’s article. See you in the trenches. B |
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