Economy rolls in Q4, but risks ahead, QC Chamber report says

The economy continued to “roll along” at the end of 2024, the Quad Cities Chamber’s Bill Polley said, but rather than congratulate themselves, the nation and the region should prepare for the “next challenge ahead.” Those are among the conclusions shared by the director of business intelligence in a Quad Cities Chamber 2024 Fourth Quarter […]

The economy continued to “roll along” at the end of 2024, the Quad Cities Chamber’s Bill Polley said, but rather than congratulate themselves, the nation and the region should prepare for the “next challenge ahead.”

Those are among the conclusions shared by the director of business intelligence in a Quad Cities Chamber 2024 Fourth Quarter market report that also explores the shifting factors shaping both the Quad Cities and national outlook. “The economic story of 2025 will be a new story more than it will be a continuation of the story begun after the COVID-19 recession,” Mr. Polley wrote.  “The big question right now is which way things might break,” he said. “Is the soft landing a springboard to even faster growth? Or do these new challenges start to bog down an economy that is showing its vulnerability? Is it even possible to just coast along here at a nice, even pace? What comes after a soft landing?” In summarizing the nation’s economy in the past year, Mr. Polley pointed to a recurring theme from RSM Deputy Chief Economist Kevin DePew’s Quad Cities Chamber Annual Economic Forecast in December 2024. “The U.S. growth outlook shows us that we’ve experienced the best economy in a generation — that people still love to hate.” Mr. DePew said then. “As we wrapped up 2024, that certainly was the case,” Mr. Polley wrote in the chamber’s Q4 report. “This was the third year in a row in which real GDP grew at a rate between 2% and 3%, and it took place in the wake of a dramatic increase in interest rates to slow inflation,” he added.

Soft landing here

“This is the economy that defied the odds, avoiding a recession even as rates stayed higher than initially expected,” Mr. Polley said. “As we transition into 2025, it is safe to say that the ‘soft landing’ that has been discussed for over a year has actually been achieved.” Consider that it’s been five months since the last Federal Reserve rate cut in September and ”the economy continues to roll along without the need for additional stimulus,” he said.  Will growth continue? “Time marches on, and the economy keeps moving,” the report said. “There's no time to sit around and congratulate yourself – you need to face the next challenge ahead.” And despite inflation appearing to be getting under control, impressive job gains and new technologies improving production, he warned that challenges lie ahead. In fact, he wrote in the regional market summary available here: “While growth is expected to stay at or near the long-term trend, risks have increased.”  For example, he said, “A softer labor market, rising inflation pressures and policy uncertainty could cloud the forecast in the months ahead.” While manufacturing employment remained flat in Q4, Mr. Polley said, “In our Business Outlook Survey this quarter, survey respondents were roughly split as to the direction of the economy.’ He said, “When asked about the expected effect of tariffs proposed by the incoming presidential administration, most respondents expected approximately no effect to a slightly negative effect on both their business and the national economy.”

Midwest has lagged

Here in the Midwest due to such factors as a slowing labor market, rising inflation and little growth in manufacturing, he said “we’ve seen more of a decline in activity than other parts of the country, particularly the West and some parts of the South.” Layoffs also increased throughout the quarter in the Midwest rising to 406,000 in the month of  December (seasonally adjusted) compared to 358,000 a year ago. The Midwest and Northeast had the nation’s highest rates of layoffs in December. Labor market numbers remain weaker than a year ago, though the Quad Cities saw a slight recovery in Q4.  For example, the metro area ended the quarter with about 181,600 nonfarm payroll jobs. That was 1,700 jobs fewer than the 183,300 in December 2023 (not seasonally adjusted). That is slightly better than when jobs were down 2,500 for the same quarter a year ago. The metro area gained 700 seasonally adjusted jobs since the end of the third quarter. At the end of the quarter, the unemployment rate in the metro area was 4.5% up from 3.9% a year ago, but down from 5.4% in October. Unemployment rates in the chamber service area ranged from 3.4% in Muscatine County, Iowa, to 5.1% in Rock Island County. In the previous two quarters, the report said, “we have noted that the effects of recent layoff announcements would start showing up in the data by the third quarter.” That continued in the fourth quarter, “although as noted above there has been a slight rebound in the last few months.” The survey also noted the economy is vulnerable to unexpected shocks from a weaker labor market and rising inflation.

Uncertainty and unease

 “Uncertainty about the new presidential administration’s economic policy may also contribute to some amount of unease — particularly concerning tariffs and layoffs within the federal workforce, two issues that have gained much attention lately,” the report added. “It is too early to tell just how much influence any of these policy decisions will have on the course of economic activity later in the year and beyond.”  Despite that, U.S. economic growth remains ”quite positive.” The Q4 report’s Business Outlook Survey also showed that more local business respondents reported increased activity than decreased activity and are expecting more of the same for the next six months. They also noted slight increases in hiring as well as continued upward pressure on wages and prices. An equal number of respondents, however, said the next six months will be better or worse than the last quarter. Opinions differed however on whether the labor market will grow, how much the region should worry about inflation and effects of policy on growth. For example, whether federal government reductions and layoffs will have a ripple effect on consumption and will tariffs have a positive effect on domestic industries or a negative effect on global supply chains? “So while status quo growth at about the long-term average rate is still a reasonable expectation for 2025, there is both a downside and an upside risk,” the regional summary said.  The latter includes productivity growth that boosts the job market while keeping inflation in check. The downside risk is the uncertainties surrounding tariff policy, taxes, government spending and other unknowns. “In the end, with the information we currently have, continued moderate growth seems most likely until we better understand the new risks that have entered the picture in recent weeks,” the summary said.