Cautious Optimism for 2025’s Economic Landscape

Cautious Optimism in 2025

By Ted Abernathy 

Managing Partner, Economic Leadership LLC 

The past year may be remembered as a period of transition - or maybe even a national reset. Daily life seems to have turned a corner toward normalcy, albeit a “new normal” that brings its own unique set of challenges.  

Between 2022 and the end of 2024, our national economy began to stabilize, shedding the shocks and distortions caused by the pandemic. Just two years ago, many experts—and an abundance of social media commentators—were convinced that a national recession was both imminent and inevitable.  

Ultimately, 2024 delivered an economic soft landing, coupled with stronger-than-expected growth. Most businesses and households returned to more predictable patterns of earning and spending. Many companies brought their employees to the office, and downtowns sprang to life. Global supply chains were repaired or restructured, and reshoring became a reality.  

Consumers continued to spend, propelling the economy to growth that outpaced much of the Western world. Inflation continued to abate, gas prices fell to their lowest in three years, and incomes surged. The S&P 500 climbed by more than 25%.  

With the tailwinds of the 2024 economy, 2025 promises a new normal. While some aspects of the economy have improved and become clearer, new risks and challenges have emerged.  

Interest rates remain high and continue to create a throttle on growth. A year ago, one of the key questions was whether inflation would decrease enough for the Federal Reserve to begin cutting rates. This fall, we welcomed the first rate reductions, though they were modest.  

As we move into 2025, the question now is how cautious the Fed will be with future cuts. While additional reductions are expected, inflation remains above the target. Ongoing geopolitical conflicts, the potential for escalating trade wars, and uncertainty around federal policies each pose economic risks, dampening enthusiasm for significant rate cuts.  

Concerns that first emerged before the pandemic continue to exert upward pressure on inflation. Tight labor markets, an undersupplied housing inventory, rising insurance costs, and an anticipated surge in health care expenses could fuel new inflation. Additionally, unless interest rates decrease, the high cost of borrowing will continue to slow new construction.  

Workforce shortages have scarcely improved. About 15 years ago, companies and economic developers began prioritizing workforce issues. A combination of shifting demographics, declining fertility rates, reduced state-to-state mobility, and shortages in critical skill areas has led to a national challenge: securing enough workers with the necessary skills. Pandemic-fueled early retirements only exacerbated this issue.  

As expected, population migration maps reveal that people are moving to some areas while leaving others. Job and labor force growth go hand in hand, intensifying competition among regions to attract talent. In response communities across the country have committed to developing targeted training programs, creating structured work experiences, and implementing aggressive talent attraction strategies.  

Two areas to watch closely next year are the power supply and the office market. The availability of electrical power has become a top national concern, ranked as the number one issue for industrial prospects by site selectors. Meeting the demands of artificial intelligence, manufacturing reshoring, and vehicle electrification has nearly doubled estimated energy requirements. What was once an infrequent topic of discussion has now become a critical competitive necessity.  

The office real estate market, both nationally and locally, is on a path to recovery, but it will take time. Vacancy rates and loan default rates have risen, and net absorption remains sluggish.  

Despite these challenges, I remain cautiously optimistic about 2025.  

N.C.’s business climate remains robust. In the latest rankings, the state’s tax climate is ranked 12th nationally, with the overall cost of doing business ranked 18th. Our firm’s recent metropolitan analysis, Raleigh ranks as the second most competitive among the 100 most populous metros, just behind Austin.  

Workforce supply and skills are significant competitive advantages for N.C. and the Raleigh-Cary MSA, which includes Wake, Johnston and Franklin counties. Both N.C. and the MSA rank among the fastest-growing areas in the country. A steady influx of new residents and workers provides a reliable source of labor to support continued growth.  

The state’s Community College System is regarded as one of the best in the nation for workforce training, and the labor pool is highly educated and skilled. N.C. also boasts an enviable quality of life, which is essential for attracting and retaining population growth. The region offers excellent education choices, nationally recognized health care assets, low crime rates, and a broad range of recreational and cultural opportunities.  

The regional challenge lies in maintaining a balance between affordability and desirability. Post-pandemic, the rising costs of housing have become a persistent concern. In many areas, shelter costs have outpaced income growth, leading to a surge in out-migration from previously high-growth metros.  

In our region, average household incomes vary significantly, making it essential to prioritize a diverse supply of affordable housing options for people across all income levels. Ensuring access to affordable housing is critical to sustaining growth.  

Several other trends contribute to a positive outlook for the future. New business formation rates remain significantly higher than pre-pandemic levels. For the first time in many years, the nation has seen a surge in productivity. The labor force participation rate among prime-age workers (age 25-54) also remains near record highs.  

Regions that focus on the future, avoid complacency, and empower visionary leaders hold a distinct advantage. While success is never guaranteed, the Raleigh MSA is well-positioned to compete with any region. 

This content first appeared in Economy & Business 2025. Click here to view the entire publication.