What Will 2025 Mean for Business?

PUBLISHED JANUARY 2025

Looking back on a generation’s worth of annual economic forecasts, we’ve learned one thing about looking ahead to the state of the regional and national economy: Discerning the future is, at best, a 50-50 proposition. Some projections will be spot-on. Others will be laughably off the mark once a little perspective is thrown in.

Pick a year at random. Say, 2021. At the onset, there wasn’t much discussion about an inflation threat. We saw how that played out. Or that the Fed, that same year, would start increasing interest rates to cool a rebounding post-pandemic economy. Didn’t happen until the first quarter of 2022, which some economists say only exacerbated spiraling inflation. 

Of course, some things play out as planned, as Commerce Bank’s chief economist, KC Mathews, noted after that year wound down. “Our forecasts were directionally correct,” he said at the time, “the surprise, so to speak, was the spike in inflation.”

Better than trying to read tea leaves about things that can’t truly be known, anyone assessing growth opportunities in the coming year might do well to focus on what is certain. And there are some for 2025:

• We’re getting a new administration that has pledged to scale back on regulatory overreach across all business sectors.

• That same administration has announced it will use tariffs as a club to beat some fair-trade awareness into countries it believes have rigged the export game. High on the list of sectors negatively impacted: Construction. Energy. Manufacturing.

• The labor market will remain tight, with arguments over jobless levels—is 3.5 percent too tight? 4 percent too lose?—the economic equivalents of debating angels on the head of a pin. For most sectors, hiring will remain tough.

• Interest rates won’t stay where they are for long. The Federal Funds Rate, down a full point since last July to 4.33 percent (after tying a high-water mark from The Great Recession years), will almost certainly come down. That’s not guaranteed, but there’s a general recognition among economists that the Fed continues to lag when it comes to tinkering with rates, so the safe bet is that at least one more cut is in store this year, potentially dipping below the 3 percent mark.

• And with a unified government in place, investors can stop sweating the expiration of President Trump’s first-term signature achievement, the tax cuts of 2017. They had been set to expire after this year, but that’s highly unlikely. Some might be fine-tuned, but in principle, Trump is gonna Trump.

If you really want an indicator of where the economy is headed this year, keep an eye on quarterly market reports from commercial real estate companies. The pandemic-era collapse of the nation’s office market is fueling a broad re-assessment of space needs throughout Corporate America. In most cases, the reviews came back with a frequent finding: Downsize the footprint.

Stubborn office vacancy rates have driven down valuations at a precarious time for owners of office buildings. An estimated $1 trillion—yes, with a “T”—in commercial office debt is coming due this year. Normally, it turns over with loan updates and extensions. But five years ago, borrowers were looking at a Fed interest rate of about 1.5 percent; as of this month, it’s nearly triple that. The economic fundamentals of ownership are being rewritten right in front of us.

Tom Taylor, senior manager of research for CRE analytics firm Trepp, said that “During the initial phase of the Trump administration, more than 2,500 leases have the option to terminate, whether through the expiration of the lease or early termination rights. If we say 50 percent of leases were to exercise termination rights, based on average margins, that translates into a net operating income hit of $550 million, destroying the value of more than $7 billion at these cap rates.”

The psychological impact of such a setback would reverberate throughout the broader economy.

Locally, the office market shook off three years of contraction, posting the slightest of absorption increases. Meager, notes Cushman & Wakefield’s Matt Nevinger, but the trend should foster some optimism. 

“Some might argue that calling 8,000 square feet of absorption a positive total is a bit misleading when you consider that figure is less than 2 basis points of the entire market inventory,” he says. “But context is key. From 2020 through 2023, the annual absorption figure was negative 1 million square feet, and the ‘best’ total from that period was negative 772,000 square feet. Anything close to flat would have been a sign of progress, and hopefully, the fact that the year-end total was positive—even by the smallest amount—will provide some lift in market sentiment.”

The national CRE analytics firm Trepp anticipates that the Fed will deliver a pair of 1-point interest-rate reductions this year, a somewhat more optimistic assessment than most economists expect. If correct, that would bring overall rates down to 2.45 percent, far more in line with pre-pandemic levels. Again, a reason for optimism.

Another, says Trepp’s chief product officer, Lonnie Hendry, is that lenders have learned some tough lessons since 2020. “Lenders are now making the best loans they’ve made in years because they have to be so diligent,” he said. “They are being much more intentionally restrictive on what they are lending, and loans that are being made are very secure from their leverage point, from a lender’s perspective.”

Investors, more broadly, are well-advised to approach equities with some caution. The Dow Jones Industrial Average, which plunged below 20,000 at the onset of the pandemic, has roared back by 125 percent since then, briefly crossing the 45,000 mark in a post-election run-up. That quickly gave way to some profit-taking and tariff-talk pessimism, but it was still above 43,500 in mid-January.

As for the labor market, Peter Hart of the Center for Economic and Policy Research offers some cautionary guidance on reading employment numbers.

While December produced a healthy gain of 256,000 jobs, that report was coming off what he called “a confusing picture” given disparities between the establishment survey and household survey—in fact, their trend lines were going in opposite directions.

“While the surveys are never exactly aligned, this sort of disparity over a long period is extraordinary,” Hart noted. “Since the start of the pandemic, the establishment survey shows a gain of 6,979,000 jobs, while the household survey shows an increase in employment of just 2,458,000.”

“The benchmark revision for last year (which will be applied to the January data) will lower job gains in the establishment survey by just over 800,000, but that still leaves a gap of more than 3.7 million,” he said. “It’s possible that the new population controls in the household survey, which will also be applied to the January data, will further reduce the gap, but it is likely that the gap between the surveys will still be unusually large.”

As for specific sectors, Hart believes health care will continue to add jobs, along with the hospitality and state/local government entities. He’s less optimistic about construction and manufacturing, where November job growth was tepid. The good news within that? “While these two highly cyclical sectors are showing some weakness,” he said, “this is not the sort of collapse we typically see at the onset of a recession.”

That, however, is on a national scale. Across the nation’s Farm Belt, there are reasons for concern. Creighton University economist Ernie Goss, who compiles a 10-state survey of banks that rely heavily on ag lending, said bankers project that 20 percent of the region’s grain farmers will have negative cash flow this year. And its overall Rural Mainstreet Index fell below growth neutral for the 16th time in the past 17 months.  

Farmland prices dropped in November for the eighth time in nine months, and farm equipment sales dropped for the 18th straight month. Given the role that ag plays in state GDP levels—nearly $40 billion combined in Missouri and Kansas, the potential for broader impact looms large.

How tough is the Kansas and Missouri rural economy regionally?

In Kansas, Goss reported that the Main Street index for January increased to 40.1 from December’s 37.4—but neither figure is encouraging since anything below 50 suggests contraction. Things are rosier on the Missouri side, with a January index of 54.5, up from just over the growth-contraction midpoint of 50.6 in December.

Overlaying all of this is the potential for market disruption from developments overseas—ongoing conflict in Ukraine and the Middle East, for certain, but also emerging threats from China and Iran, which Keith Prather of Lawrence-based Armada Corporate Intelligence says could disrupt global markets and supply chains.

“While the U.S. economy is expected to maintain its growth trajectory, supported by technological advancements and productivity gains, it  faces challenges from potential policy shifts and global uncertainties,” Prather said in an economic forecast for CrossFirst Bank. “The trajectory of U.S. debt accumulation and the risks to global financial markets were unsustainable, regardless which party won the election. Significant fiscal changes will be required regardless, and the impacts of those measures will affect any party.”

“The new administration’s policies, particularly in trade and fiscal matters, will play a crucial role in shaping both domestic and international economic landscapes in the years ahead,” Prather said. “Industries aligned with technological innovation and financial services are likely to see expansion, while those vulnerable to trade tensions or shifting government priorities may face headwinds.”