Economic Outlook 2025

Uncertainty, Guarded Optimism Abound as the Calendar Turns

Before talking about 2025 and what might happen this year, Carol Campbell first wanted to talk about 2024 — and 2023.

The latter was a very solid year for her business, Chicopee Industrial Contractors, which specializes in rigging and machinery installation, and also for the manufacturers on its client list. The former? Not so much.

“Almost immediately after the first quarter, we really experienced a lot of peaks and valleys, and I think it was the uncertainty of the election and the uncertainty of the world,” she said. “I talked to people in our industry, and they were all the same — whether union or non-union, it was just … people were afraid to spend money. They were afraid to borrow money, and they were afraid to spend money.”

But after the election — and Campbell doesn’t think it has much to do with who won — things got better, and orders started coming in. “There was no more uncertainty,” she explained, adding quickly that such sentiment applies strictly to the presidential race.

“There’s a lot of uncertainty about what Trump’s really going to do, and any prognostication about the economy is contingent on what Trump does.”

Indeed, there is a great deal of uncertainty about matters impacting Campbell’s sector — everything from a possible dockworkers’ strike, which would keep the machines CIC installs from entering the country, to tariffs, which would impact the cost of those machines and the parts for them — and most other sectors as well.

“There’s a lot of uncertainty about what Trump’s really going to do, and any prognostication about the economy is contingent on what Trump does,” said Bob Nakosteen, semi-retired professor of Economics at UMass Amherst, referring to the president-elect’s return to the White House and unending speculation about what his administration will be doing regarding everything from tariffs to immigration to taxes on tips and Social Security — and what the impact will be on everything from the workforce to interest rates and inflation to the federal deficit.

Carol Campbell says the uncertainty of the election has passed, but there is now uncertainty about what comes next.

Beyond the general uncertainty about the economy, inflation, and the Trump administration, there is general optimism regarding the local scene, as captured in thoughts on the coming year from more than two dozen area business leaders starting on page 7.

Rick Sullivan, president and CEO of the Western Massachusetts Economic Development Council, said the state’s economic-development bond bill contains earmarks that represent large, and unprecedented, opportunities for development of new sectors, specifically food science, cybersecurity, and quantum computing in this region.

“When you put these things together, I think it’s the single biggest investment, specifically in the Western Mass. economy, maybe ever, but certainly in the past few decades,” he said. “The governor, the lieutenant governor, and the secretary of Economic Development are committed to making potentially transformative investments in Western Mass. and our economy.”

Meanwhile, Andrew Melendez, founder and director of the Latino Economic Development Corp., said one of the better stories locally has been the continued surge in new businesses launched by women, Blacks, and Hispanics in the region’s gateway cities.

He cited the Shops at 1350 Main in Springfield — a collection of nine Hispanic-owned businesses in former office space in that tower — as an example of this growth, and also of what area communities should try to emulate.

While new businesses are opening in area communities, many entrepreneurs looking to launch or get to the next level are facing the challenge of finding a storefront, Melendez said, with too many landlords holding out for national chains or opting to keep space vacant rather than compromise on rent and give a fledgling enterprise a place to start, at an amount that won’t handicap them.

“Inflation is at 2.7% and trending upwards. If they do more rate cuts, they’re fearful that inflation will creep back in, so I don’t think we’re going to see the rate cuts we thought we were going to get.”

“There’s a new dynamic with new entrepreneurs trying to come into the market, and landlords that are just getting what they believe they can get for their square footage,” he explained. “What we need are people willing to come together and negotiate.”

For BusinessWest’s annual Economic Outlook, we talked with business and economic-development leaders about these issues and the many others that will shape 2025 — and beyond.

Matters of Interest

Adding to the speculation — and anxiety — about what might come in 2025 was the Federal Reserve’s recent decision to package its 25-basis-point cut in interest rates last month with indications that it will only cut rates twice in 2025, down from four in its previous forecast.

Tom Senecal, CEO and chairman at Holyoke-based PeoplesBank, had read about projections for fewer cuts before the strong hints from the Fed, and said they speak loudly to the fact that the fight to lower inflation is far from over.

“Inflation is at 2.7% and trending upwards,” he noted. “If they do more rate cuts, they’re fearful that inflation will creep back in, so I don’t think we’re going to see the rate cuts we thought we were going to get.”

A slower pace of rate cuts, or even rate increases, which some economists project might actually happen if inflation climbs higher and the Fed sees the need to step in, would not be good news for banks, Senecal said, noting, as others in the industry have, that 2024 was a year of reckoning, when higher rates on deposits, coupled with loans locked in at lower rates, squeezed margins to uncomfortable levels.

Compounding matters further is that there is now a deposit crunch, Senecal added, noting that, while deposit rates soared during the pandemic when people were spending less, they’ve been dwindling as customers battle the higher costs of … just about everything. Now, as always, banks need deposits to fuel loans, and there’s a pitched battle for them.

“With no deposit growth, banks are getting squeezed in their ability to lend, which ultimately impacts economic growth,” he said, adding that factors such as these should fuel more M&A activity, such as the announced ‘merger of equals’ between Berkshire Hills Bancorp and Brookline Bancorp (see story on page 28).

“Scale and efficiency are huge these days because of where interest rates are,” he explained. “Margins are extremely tight, costs are extremely high, and banks are starting to realize that, to compete, you have to have scale.”

Andrew Melendez says entrepreneurship is key to filling vacant storefronts — and creating more vibrancy — in the region’s gateway cities.

Despite the many challenges facing banks and the general uncertainty regarding the economy, Senecal said he’s cautiously optimistic, a sentiment shared by Campbell, who said there are caveats to this optimism. The possible dockworkers’ strike would be the most immediate, and tariffs would be the largest.

“I don’t see any good coming from tariffs — it’s simple math,” she said. “If the parts are coming from China and there’s a huge tariff on those parts, I don’t see how that can help manufacturers — or us.”

Overall, Nakosteen said, the Biden administration is handing the Trump administration a relatively sound economy, one with low unemployment, relatively low inflation, and modest but persistent growth. It’s strong enough that the Fed is worried that it might have to slow it down again.

What happens with the economy over the next several quarters depends on those factors listed above, he said, adding that large-scale deportations, as promised by Trump, could hurt several sectors from a workforce perspective, including agriculture, construction, and hospitality.

Meanwhile, Trump vows to continue tax cuts and eliminate taxes on Social Security, tips, and overtime work, will certainly raise the deficit and may trigger higher inflation.

“If all the policies he’s talked about are implemented, the national debt is going to really increase,” Nakosteen said. “At some point, that will really affect bond markets, interest rates may increase, and you might even see inflation go back up just because of that.

“At the moment, if the status quo was maintained … the economy is strong, and there’s no indication it’s going to weaken,” he went on, adding that, given the strong talk leading up to November, the status quo is unlikely.

Growth Engines

As for regional economic development, Sullivan offered many reasons for optimism, with many of them contained in those earmarks within the state’s economic-development bond bill.

“There’s an exciting one for $30 million around food science, leveraging the leadership at UMass Amherst and the great work they’re doing there,” he said. “There’s $40 million identified for Greater Springfield around quantum computing, quantum manufacturing, leveraging the Massachusetts Green High Performance Computing Center in Holyoke, and there’s an additional commitment by the Commonwealth in cybersecurity, which is going to continue to grow.

“These are all important sectors — they’re important today, and they’re going to be more important tomorrow and for the next generation,” he went on, adding that growth of these sectors means new, important, good-paying jobs for the region, some of which will not require a college degree.”

On the minus side, workforce issues continue to nag businesses across virtually all sectors, an ongoing challenge that has many concerned.

“We’re just not getting people walking through the doors, young or old, who want to work defined hours,” Campbell told BusinessWest. “And when we talk with people in our industry, they say the same thing — the biggest concern is workforce, and I don’t see anything out there to indicate that things are going to change any time soon.”

Melendez, meanwhile, said there are new businesses being opened in the downtowns of the region’s many gateway cities, including Springfield, Holyoke, Chicopee, Westfield, and Pittsfield, but there would be more of them, and these communities would certainly benefit if more landlords were willing to negotiate and structure rental agreements to give entrepreneurs time — and terms — to get some roots down.

He cited the example of Las Cangiris, a new Latin restaurant in downtown Springfield, in the location of the short-lived Crazy Crab eatery, which managed to negotiate a favorable lease that will give it a better chance at survival.

“There has to be a balance within area communities — we have to figure out how we can fill these empty storefronts,” he said, adding that doing so benefits not only individual entrepreneurs, but also central business districts across the region.

Unfortunately, he went on, too many landlords are content to “wait for Superman,” as he put it, meaning a national chain willing to pay a high rate, or let a property sit vacant and take the losses to help reduce their tax burden.

Melendez pointed to ongoing discussions among Boston city councilors about a tax on long-vacant property in an effort to stimulate movement and fill empty storefronts. He said this region may not need to go there, necessarily, but it does need a concerted effort to put this real estate to productive use.
“Everyone has to play ball together,” he said. “We’ve been filling storefronts across Western Mass., and people are people successful, but they’re one-offs; what we need to start doing is filling city blocks and city districts to make a true impact.”