RESEARCH — Jan 30, 2025
Top US regional economic insights for 2025
US state and metro economies broadly slowed in 2024, although they still entered 2025 in good shape. Employment growth, while decelerating, exceeded 1% in all four Census regions — Northeast, Midwest, South, West — as the nation’s labor markets proved to be resilient in the face of the Federal Reserve tightening interest rates. The unemployment rate rose in every region over the course of 2024 while remaining low by historical standards. CPI inflation continued to ease in every region outside of the Northeast.
In 2025, the cooling of economic growth prospects that took hold through 2024 will continue. We expect all regions to remain in a gradual expansion mode. However, the new US administration brings added uncertainty to the outlook as policy and priorities shift.
1. The South will lead the nation in job growth for the 4th straight year, but the pace of all will downshift. Job growth has been decelerating since 2021, and that trend will continue in 2025, with all four regions slowing relative to their 2024 pace. Companies are scaling back job openings as they navigate an uncertain economic and political environment. A sharp pullback in immigration will be a headwind for the labor market, especially in sectors that rely most on foreign workers. While we expect the South to lead the nation in employment growth for the fourth year in a row, the pace will be well below historic norms. The West will trail the South by a modest margin, with the Mountain states remaining a key driver for that region’s performance. The Northeast and Midwest will grow at a similar pace, lagging behind the South and West.
2. Unemployment rates will increase in all four Census regions. All regions are expected to see their unemployment rates rise during 2025, as state labor markets cool and the US economy enters a period of below-trend growth. By the end of the year, the national unemployment rate is forecast to rise above 4.5% due to a confluence of factors. These factors include a higher path for interest rates, which will raise borrowing costs and hamper business expansion; diminished tailwinds, such as reduced fiscal stimulus and heightened global economic uncertainty, along with a strong dollar, which will reduce export competitiveness. The West will see the highest unemployment rate as job growth slows in California, Nevada, and Washington due to weakness in professional and business services, retail trade, and information hiring. The South, on the other hand, will have the lowest unemployment rate for the 4th consecutive year driven by especially low rates in Florida, Georgia, North Carolina, and Tennessee.
3. International migration will plummet, with the South seeing the biggest decline. International migration surged coming out of the pandemic, exceeding 2 million annually over 2022 and 2023 and likely again in 2024. International migration peaked in 2023 at 2.56 million, nearly double the 2015 level, the previous recent high. This surge was primarily driven by an unprecedented rise in crossings and asylum seekers along the Southern border. However, migration will plunge this year. The Biden administration’s congressional action in June sharply curtailed encounters over the latter half of 2024, and the Trump administration will further tighten border security and increase deportations. International migration this year will fall to its lowest level since 2020, and be well below the trends seen over the 2000s and 2010s.
The South, which attracted 42% of international migrants during the post-2020 surge — with Florida and Texas accounting for 26% of the US total — will experience the most significant decline. Beyond the South, California, New York, and New Jersey are also major destinations, with those states comprising around 25% of the national total. While this will negatively impact population and employment growth, the South is expected to maintain its lead in these areas due to continued domestic inflows and its competitive advantages. The gap between the South and other regions will narrow.
4. Population growth will slow across regions, with the Northeast experiencing a modest decline. In the most recent history from the US Census through the second quarter of 2024, population growth registered a 1.4% year-over-year gain in the South, 1.0% in the West, 0.8% in the Northeast, and 0.6% in the Midwest — all solid results given their respective trends over the past decade. This year, growth will decelerate markedly and by the fourth quarter register a 0.6% year-over-year gain in the South, 0.3% in the West, 0.1% in the Midwest, and a 0.2% decline in the Northeast.
The aforementioned trends in international migration will be a drag on population growth in every region, but that impact will not be felt evenly. In 2023, the Northeast relied most on international migration to fuel population growth with a net migration rate of 9.1 per 1,000 inhabitants. The South was a distant second at 8.0, followed closely by the West at 7.7. The Midwest lagged all regions at 5.4.
Domestic migration will also be an important driver. The South attracted domestic migrants at levels far exceeding historic norms over 2020-23, with the region a magnet for pandemic movers. However, domestic inflows to the South came back down to earth in 2024 as trends largely normalized. This was met with less severe outflows from the West, Northeast, and Midwest. In 2025, the South will remain the only region with domestic inflows for the 7th consecutive year and levels will remain near historic norms. Domestic outflows from the West will modestly improve over last year, while outflows from the Northeast and Midwest will modestly worsen yet remain near the 2023/24 levels.
The Northeast will experience the sharpest deceleration in population growth this year, with a modest decline. The South will follow with the second-largest deceleration, followed by the West. While the Midwest is expected to be the most resilient region, its growth will still lag behind the South and West. A total of 10 states are projected to experience population declines, the highest number since 2021. Population growth fuels economic growth by creating a virtuous cycle where new residents fill job openings and increase demand for housing, goods, and services. However, across the US, aging demographics and low fertility rates are contributing to slowing population growth. This deceleration, and in some cases, outright decline, limits the potential for economic growth.
5. Manufacturing employment will contract for the second year in a row with the deepest losses in the Northeast. The manufacturing sector struggled over the second half of 2024 due to weakness in durable goods production, including subsectors such as transportation equipment, fabricated metal products, and computer and electronic products. While producers reported improvements in supply availability during 2024, interest rates and prices for key inputs remained elevated, which hampered new orders activity and put downward pressure on producer margins. All regions are forecast to see a decline in manufacturing employment in 2025, with the South is expected to see the smallest contraction while the Northeast will face the largest decline.
While most major manufacturing sectors are forecast to decline, the transportation equipment sector, which includes automotive manufacturing, is expected to see modest growth in the upcoming year due in part to the buildout of several major electric vehicle plants, many located in the South and Midwest. Even with that area of growth, overall, elevated interest rates, high input prices, and a strong dollar are headwinds for the manufacturing sector in the upcoming year.
6. Home price growth will slow across all regions, although it is not expected to contract significantly. National home prices rose 4.3% year-over-year in the third quarter of 2024, according to the latest data from the Federal Housing Finance Agency. This represented a deceleration from the pace last year, as affordability pressures have mounted and persistently low inventory of homes for sale kept prices firmly positive. Every region experienced a softening in home price growth, with Northeastern states seeing the fastest price appreciation during this period as the region grappled with some of the tightest inventories in the nation.
This year, prices will further slow across regions. Easing mortgages rates will provide a modest boost to inventory levels and encourage more homeowners come off the sidelines and list their homes when they were unwilling to in a higher rate environment. Continued affordability pressures will limit price appreciation, while demand will remain steady and support continued upward movement in prices. Home prices in the Northeast and Midwest will grow at a similar pace and lead the nation. Continued inventory tightness in the Northeast will support price growth. The Midwest is the most affordable region, which will help support demand. The West will see the third-fastest price growth, while the South lags with essentially flat growth. Housing inventories are highest in the South and a slowdown in net migration from recent trends will further hurt demand. Overall, the housing market across all four regions will be healthy enough to support continued price growth even if it will slow compared to prior years.
7. Housing affordability will broadly improve in markets across the US for the second year in a row. Easing mortgage rates and moderating home price gains combined to provide some relief to affordability for the first time since 2020, although affordability remains a challenge in most housing markets across the country. By the end of 2024, in 29 states a median-priced home was unaffordable to the median-earning US household. This number is just a hair better than the tally of 30 states at the end of 2023. It’s worth noting that this state count masks the fact that the index did improve in every state in 2024, even if most remain unaffordable. In late 2019, just two states were unaffordable.
Affordability will continue to move in a favorable direction this year. Home prices will further decelerate, and mortgage rates will move lower. By the end of the year, 20 states will be unaffordable to median earners, still very high historically, but a notable improvement. All four regions will see progress, with the Midwest and South the only two regions where a median earner can afford a median priced home.
8. Progress in curbing CPI inflation will stall with the regions ending the year in a tight band. CPI growth across regions ended 2024 in a very different spot than it started. Going into 2024, CPI inflation was running hottest in the South and West by a wide margin but these regions ended the year with the lowest rates. In December 2024, CPI inflation registered a 2.8% year-over-year gain in the South and 2.5% in the West. CPI inflation ran hottest in the Northeast over the back half of last year and notched a 3.5% year-over-year gain in December, partially driven by strong home price growth. The Midwest was a distant second, with growth of 3.0% year over year. The progress seen in the South and West were a big influence behind the progress nationally, even if an acceleration of CPI inflation in the Northeast blunted some of the national improvement.
Renewed price pressures will emerge this year related to a combination of tariffs, relatively robust demand, and lingering labor shortages. CPI inflation will likely be higher in all regions by the end of 2025 relative to current rates, except in the Northeast, where shelter costs have the most room to come down. Lack of clarity around tariff policy adds greater uncertainty around the CPI forecast. By the end of this year, we are projecting CPI inflation to range in the low-to-mid 3% across regions. The Northeast will likely lead for the second year in a row, but only modestly.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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