Savannah Chamber

10 4 shift in consumers' spending that favors goods over services. High-contact service businesses may never claim the percentage of GDP that they did prior to the pandemic. It will take years for some types of service businesses to fully recover from the pandemic. A few service industries in decline prior to the pandemic will not fully recover (e.g., movie theatres). Sales of both durable and nondurable goods are expected to increase, with spending for durables increasing faster than spending for nondurable goods. The main factor behind above-average spending for durable goods will be higher spending for vehicles. Because consumers were unable to buy what is not available, new vehicle sales in 2021-24 would have been stronger if not for supply shortages. Therefore, we expect vehicle sales to rise from 16 million units in 2024 to 17 million units in 2025. That is not usually what transpires during an economic slowdown. The expectation for higher vehicle sales reflects the release pent-up demand (e.g., deferred replacement needs) for new vehicles as supply constraints ease. Pent up demand for vehicles is substantial. People have not been able to replace older vehicles. In 2024, the average age of the vehicle fleet rose to a record 12.6 years, up two months over 2023. There are additional factors that bode well for future vehicle sales. In post-pandemic America, people are less inclined to use public transportation – or ride share – and more inclined to use personally-owned vehicles. Similarly, car, light truck, and recreational vehicle sales will benefit from peoples' greater interest in traveling by car to destinations closer to home rather than to far-flung destinations by plane or cruise ship. Strong sales of boats, campers, and trailers support sales of trucks and other personal vehicles capable of towing heavy loads. In addition, stronger preferences for detached homes in the suburbs – or rural areas – over attached housing in, or near, city centers support demand for new vehicles, especially light trucks. Our sanguine outlook for sales of personal vehicles assumes that labor disputes and supply chain issues are mostly resolved. Price increases and demographic factors will cause spending on pharmaceuticals and other medical products to rise. Spending on grocery items will rise modestly as consumers trade down from restaurants to food prepared at home. One result will be more intense competition among restaurants, which will lead to margin compression. Spending on clothing and footwear will decrease slightly. Little or no home price appreciation will limit sales of durable household equipment, building materials, fixtures, floor coverings, furniture as well as other home-related goods and services. Consumers' spending on luxury goods should slow in line with the slowdown of the overall economy, and such spending will be sensitive to the performance of the US stock market. Labor Markets In 2025, total nonfarm employment will increase by 0.6 percent compared to 1.2 percent in 2024, 2.3 percent in 2023, and 4.3 percent in 2022. Most job growth will be single-family homebuilding, health care, education, and state & local government. Professional and business services firms will see modest job growth. Transportation and manufacturing, typically cyclical industries, are not expected to lose jobs. Jobs will be lost in non-residential construction, multi-family construction, financial activities, mining and logging, information, and retailing. In 2025, the less widespread availability of jobs means the quit rate will continue to drop as workers feel less confident in their ability to find better opportunities. That will limit wage and salary gains because job switchers tend to see higher than average increases in compensation. The lower quit rate therefore reduces inflationary pressures. Industrial production and the number of manufacturing jobs will increase in 2025. Capacity utilization will be 77 percent, which is the same level as in 2024. Reshoring production is a positive factor for manufacturing job growth. Indeed, reshoring will be especially important to industries favored by recent shifts in US industrial policy. It follows that semiconductor and electric vehicle manufacturers will be hiring. Less positively, trade tensions and past appreciation of the U.S. dollar will be headwinds for industrial production.

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