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December 30, 2024
This year has brought many changes to our national and global economy, and there is still much yet to be uncovered.
Questions around inflation, employment, tariffs and interest rates have driven uncertainty, and the question remains – how will Wisconsin’s economy fare in 2025?
While we wait to see the impact of these economic trends, there are several areas where Wisconsin businesses can be optimistic.
According to the U.S. Bureau of Labor Statistics, Wisconsin unemployment rates currently sit at 2.9%, below the national average (4%), with various industries like agriculture, technology manufacturing and tourism driving labor mobility and productivity.
And, though national economic trends may impact local businesses, we are closely monitoring these economic indicators and are prepared to evaluate business planning accordingly.
Rate cuts and stabilizing inflation
Fed rate cuts have been driving conversation over the last couple of months, with another round of cuts taking place in early December.
So, how is this impacting inflation?
Reports on inflation have been stable – October saw national inflation at 2.8% (according to Personal Consumption Expenditures) accounting for food and energy prices.
Though prices have remained stubborn for some of these core items, factors driving inflation are now mainly embedded in wage growth, as seen in service industry inflation.
The recovery of labor supply has reduced inflation demands, and the shift to more workplace flexibility has seemed to reduce some of the wage pressure.
Our business clients are now seeing an inflection point, as they consider whether prices for their goods and services can stay sustainably high.
Many local companies are hesitant to raise prices as they work to retain and grow their customer base – knowing that there is a saturation point of what people are willing to pay for a certain product or service.
Even if prices go up, there are products across every spectrum with a hard price customers will not exceed.
We have seen prices come down for some direct-to-consumer products, though this is not necessarily the case for business-to-business pricing.
Small businesses are contemplating what that breakeven point is, where prices cannot go higher, while maintaining income sustainability.
Many consumers and business owners have wondered if the recent and anticipated Fed rate cuts are moving too quickly, with concern for driving new inflation.
In many ways, the Fed provided the soft landing that our businesses hoped for.
This soft landing can continue if consumer confidence remains strong, labor supply grows, inflation momentum and expectations come down and the Fed shows patience in getting back to 2% target inflation.
Employment trends
With Wisconsin unemployment reporting below the national average, local businesses and employees are in a strong position heading into 2025.
Payroll employment is now reaching new heights, following a similar trajectory to pre-pandemic years.
The labor force suffered a setback in recent years, particularly with a decrease in older workers (more than 65) during the COVID-19 pandemic.
Inflation may prompt some older workers to come back, though this will not likely impact the job market greatly, as older workers do not comprise a large share of the workforce.
National employment trends have remained relatively consistent, apart from some major events impacting employment (seasonal hiring seasons and Hurricanes Milton and Helene).
These employment trends factor into the Fed’s decisions around rates and may give them more motivation to continue the rate cuts.
Anticipated tariff proposals
With new United States administrative priorities, there are potential tariff proposals in discussion that would impact trading with countries like Mexico and China.
Potential tariff increases and tax cuts could drive inflation higher and thus have prompted business owners to ask when the most appropriate time for rate cuts would be.
My hope is that these tariff proposals may be used as a tool to drive other administrative priorities, which could result in less volatility than the overall picture being painted today.
That said, we are seeing more spending activity from companies taking advantage of both end-of-year cash flow and hedging anything that may come from a new tariff.
The United States’ long-term supply conditions and technological leadership look healthy, so only time will tell how tariff proposals play out and impact Wisconsin and the broader nation’s economic landscape.
Optimism for positive growth
Though Wisconsinites anticipate how economic policy changes like Fed rate cuts and tariffs, and broader trends will impact their daily lives, there is room for optimism for their economic position.
As these trends take shape in the new year, business leaders can collaborate with trusted partners to navigate the economic landscape’s changing tides.
The views expressed in this article are solely those of the author and do not necessarily reflect the views of Associated Bank, N.A., its affiliates or any other entity.
