January 6, 2025

Happy New Year, everyone. I’m Michael Feuz, economist and speaker here at ITR Economics, filling in again for Taylor St. Germain. I hope you all had a wonderful Christmas, holiday season, New Year with your family and friends.

Today to kick off the New Year, I want to talk about where we currently are in the overall macro economy, what we kind of refresh and highlight, what we anticipate for 2025, and most importantly, cover the opportunities that we see in 2025, as well as discuss some of the obstacles that will remain or re-emerge or emerge as we move through the year of going to 2026 and beyond. 2025 is going to be a pivotal year to take action to position your business to thrive for the remainder of this decade and as we approach the 2030s.

On the previous episode, Taylor highlighted how this year we will see easing inflation and lower interest rates, really as we start approaching the middle of this year. This low interest rate and easing inflation environment will make it imperative for business leaders to take this opportunity to inflation-proof their business by making those investments in improving operational efficiencies, eliminating bottlenecks, reducing your reliance on labor growth as we move through the back half of the 2020s.

Overall, we see growth through 2025 and beyond through 2029. And in 2025 specifically, we anticipate a modest cyclical rise for the U.S. economy. That lower interest rate environment coupled with nearshoring will drive growth in U.S. industrial production. We’re anticipating and forecasting 1.4% growth this year in U.S. industrial production. And what also is further informing that is just looking at the leading indicators that lead the overall industrial economy. I’m thinking about the ITR leading indicator, the total capacity, the total capacity industry utilization rate, as well as the U.S. purchasing managers index or the PMI. All three of those solid leading indicators are suggesting general rise for 2025 and corroborate our outlook for optimism this year, increasing demand in an overall growth environment.

Now pivoting from the industrial sector, I just want to also peak briefly about at the consumer. The consumer makes up. 68% of GDP, hence the consumer is king. A strong consumer drives the overall US economy. And a great place to just look at and answer the question, how’s the consumer doing is overall retail sales. Right now, retail sales on a 12/12 rate of change is at about 3%. And it’s been trending generally relatively flat for the last couple of months.

However, as the economic environment improves, employment remains high, unemployment is low, the labor market is tight, these are driving the rise of real incomes. And this helps inform our expectations that retail sales and consumer activity in the economy in 2025 will begin to rise. And we’re forecasting for US total retail sales, 4.6% growth in 2025.

This coalescing of easing inflation, lower interest rates, increase in consumer activity, and overall economic growth is going to yield that opportunity for businesses that makes 2025 such a pivotal year. So in addition to making those key investments to improve your efficiencies, reduce your need for labor growth and improve your existing labor productivity, it’s going to be imperative for businesses to take advantage of really a more positive sentiment in 2025. This positive sentiment will be with consumers and businesses as they are feeling much better amidst all those factors that we talked about, the improved financial environments, more growth, rising real incomes.

This makes it important and clear. critical that businesses have a intentional, strategic pricing plan for 2025. You want to have a plan to raise prices. This 2025 will, your customers, the consumers will be feeling likely good enough that they’ll be willing to take those price increases and may not even notice them. If maybe you go with a strategy of more price increases, but maybe a smaller increments that boil the frog to death. I know we’ve discussed that before, but it’s important to take advantage of. So in 26, you’re ahead of the curve and you’re not in a position where you have to raise prices at a level that won’t be received well, as we expect inflation to return in those years. So overall, 25, the leading indicators, everything’s pointing towards more growth this year. And the key is being ready to capture and take advantage of that growth environment.

Lastly, I want to highlight ITR Economics’ upcoming virtual summit that will be held this March. We have this year a lot of excitement. We have the new incoming administration. There’s questions on policy, taxation, tariffs. What does that mean for the general macroeconomic outlook, as well as what businesses should be thinking about, depending on how they’re exposed to trade policy of tariffs and protectionism? During this summit, you’ll hear from both experts here at ITR Economics and CRO on how your business can succeed in the second half of the 2020s and prepare for the downturn in the 2030s. We’ll be covering taxation, AI, performance improvements, pricing strategy during periods of inflation and deflation, and supply chain challenges and opportunities. So keep an eye out on how to sign up so you can ensure your business’s success in the coming years.

With that, I’ll leave it there. Happy new year to everyone. Looking forward to continue speaking with all of you and look forward to joining you again on the next ITR TrendsTalk