As 2025 begins, the Atlanta Fed's Regional Economic Information Network (REIN) looked at 2024 in the rearview mirror using what firms told us over the course of the previous year. Here are our key takeaways, which we will elaborate upon in this article:
- Growth in demand eased from pandemic-era highs, settling at more historically normal levels.
- Labor tightness has eased, enabling firms to find and hire workers more easily.
- After spending freely during the pandemic, consumers adopted cautious spending habits in 2024.
- Lower inflation and easing monetary policy have given firms a measure of relief.
In 2024, contacts across the Southeast saw a return to "normal," or prepandemic, conditions. Wage growth expectations corrected to previous ranges, supply chain constraints stabilized further, demand conditions softened from record highs, and firms appear confident that inflation will reach the Fed's target in the near term.
What businesses told us
REIN business contacts reported slower demand growth in 2024 than in previous years, though most described this slowing as a return to stabilization more aligned with prepandemic growth. Although some contacts noted that demand conditions could soften quicker than expected, and there are some nationwide reports of demand slowdowns in specific sectors, most REIN contacts remained confident that conditions ahead are stable. (It's also important to note that a return to prepandemic wage growth and steadying cost growth has influenced businesses' expectation of normalization and stability.)
Early in the pandemic, contacts had raised concerns not only about the supply of workers but the wages they demanded. When demand boomed during the pandemic recovery, firms struggled to find adequate numbers of qualified workers. Because of this imbalanced labor supply, the wages demanded by workers rose to new highs. However, continuing trends reported in 2023, the labor market eased significantly in 2024, as firms report much more labor availability. And the majority of contacts expect the labor supply to continue to ease, citing an increasing number of applicants and greater availability of workers. Furthermore, most firms reported that annual wage growth had returned to 3 percent to 4 percent, well below the highs of pandemic years.
Although most REIN contacts describe a return to normal, it's important to note that not all firms are experiencing such a return to past norms. Particularly, small businesses are often more exposed to cost pressures, the inability to raise wages, and the impacts of restrictive monetary policy. These firms reported higher instability and stress over the past year, but they also note that a return to easier borrowing with less restrictive interest rates may help in the new year.
Consumers practiced caution in 2024
The consumer in 2024 was much more cautious than they were during the pandemic, displaying a continuation of what contacts told REIN started in mid-2023. Consumers, having spent their pandemic savings by early 2023, were much more cautious in 2024. Higher borrowing costs were a drag on larger purchases, but this observation doesn't mean that consumers did not spend in 2024. Rather, as noted, demand and consumption has settled back into what has been described as prepandemic norms.
Restrictive monetary policy and higher-than-target inflation have affected all consumers, and unsurprisingly, those with the lowest earnings felt these challenges most acutely. In terms of household financial health, REIN contacts in 2024 often expressed concern about stresses on low- and middle-income populations. Through the second half of the year, contacts said they noticed an uptick in credit card debt, and banks reported consumers restructuring debt through various means.
Inflation continued to be tamed
As 2024 began, inflation appeared to be on a relatively smooth downward trajectory. Though upside inflation risk remained, firms generally described slowing cost increases and reduced pricing power. Consumers were becoming more sensitive to increases and trading down even in the luxury segment, and firms were finding it harder to pass elevated costs on to their customers. As the year progressed, however, the trajectory became bumpier, and the difference between goods and services inflation expanded. The resolution of supply chain problems eased prices on many goods, but increasing labor costs meant prices for services remained up and stuck there.
Housing costs also continued to increase as comparatively high mortgage rates dissuaded homeowners from selling, and the supply of multifamily housing grew slowly. In addition to labor and shelter, insurance costs continued to rise, particularly for property and liability coverage in geographies exposed to severe weather. But by the start of the fourth quarter of 2024, most firms were experiencing continued easing on nonlabor inputs, wage increases were projected to return to prepandemic levels, housing costs began to normalize, and there were even reports of insurance cost stabilization. Though talks out of Washington of new tariffs renewed some inflationary concerns, most contacts project broadly stable costs and prices in 2025.
Looking at the rest of 2025
Many firms began 2024 expecting inflation to wane and the Fed to cut rates, decreasing borrowing costs and fostering new investment. When inflation proved more volatile, firms revised their thinking, and 2024 developed into a period of moderation. Demand softened, labor markets eased, and inflation slowly trended down. Toward the end of the year, firms expressed renewed positivity the Fed eventually did loosen monetary policy, but some consumers continued to practice cautious optimism.
Firms are now finding it easier to hire if they need to, but many are seeking efficiencies rather than replacing departed workers or increasing the size of their workforce. Entering 2025, firms have a generally bullish outlook. Although the robust spending and demand of 2022-23 might be over, firms across most sectors expect sustainable growth in 2025.
Megan Houck, a senior business analyst, and
Justin Shadley, a senior business analyst, both in the Atlanta Fed's Research Department