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In early November, the leaders of the R Street Property and Business Improvement District did a walk in the R Street Corridor to ask company owners what they were most worried about. Inflation? Crime? Homelessness? 

“Parking,” says R Street Sacramento partnership administrator Michelle Smira. “We do spend a lot of time and effort ensuring that the corridor is and feels clean and safe,” she says of the improvement district, which funds activities like graffiti removal, litter pick-up, marketing and security services. “But if shoppers feel like there’s no parking, then maybe they’re not going to come. You Uber to dinner, but you’re not going to Uber to shop.”

The apocalyptic tenor of the recent election made it seem disaster was inevitable no matter who won. But at least on the economy, the first half of 2025 should be a sigh of relief, letting most businesses stick to small ball. Barring calamity, economists and experts say there won’t be big national or regional economic swings in the first half of 2025. 

The big view

A metric that got scant attention pre-election showed up in the Sacramento Business Review’s mid-year report last June. Nationally there was talk of a robust economy — one headline that month said it had hit “superstar status.” 

But an SBR table showed that in mid-2022, the University of Michigan’s national and regional consumer sentiment index — a measure of how consumers feel about the economy — fell to the lowest level in the index’s history, which dates to 1978. By June 2024, it had improved only slightly, remaining lower than in mid-2020 and than anytime pre-pandemic going back to 2011. 

Two factors drove the grim mood — COVID and interest rates, says Sanjay Varshney, chief economist for the SBR, which looks at where the region’s economy has been and might be going. Small businesses and consumers got slammed by the economic effects of the pandemic and, just as they were recovering, got smashed by high interest rates, he says. 

Though consumers’ sour feelings might not improve next year, the national economy should continue its slow and steady climb, according to national forecasters. In an Oct. 29 to Nov. 8 survey of 38 leading business economists by the National Association for Business Economics, respondents had middling sentiments, forecasting moderate economic growth of 2 percent and inflation of just 2.3 percent in 2025.  

That mostly matches the outlook of the nonpartisan Congressional Budget Office, which projects GDP growth of 2 percent, inflation at 2.1 to 2.3 percent, and unemployment at 4 percent. 

The big unknowns next year are the early moves of the incoming Trump administration. But one near-certain priority will be extending the provisions of the Tax Cuts and Jobs Act that Trump signed into law in 2017, says Varshney. Many of its elements were set to expire at the end of 2025. Among other measures, the 2017 law cut the corporate tax rate, increased the standard deduction and increased the applicable exclusion amounts for estate taxes. With Republican majorities in both congressional chambers, the administration likely will get its way.  

If so, one provision that will help small businesses is extension of the 20 percent deduction for certain qualified business income, says Bill Slaton of Sacramento management consulting firm Leading Resources Incorporated. That measure, which was scheduled to sunset in 2025, allows owners of pass-through businesses like sole proprietorships, LLCs and S corporations to deduct up to 20 percent of qualified net business income, cutting their effective federal rate accordingly. 

Another that could help, though it’s less certain to pass, are changes to the state and local tax deduction, which lets taxpayers write off a portion of state and local property, income or sales taxes from their federal taxable incomes. Trump’s 2017 tax plan set a $10,000 cap on those deductions, which especially affected those in high-tax states like California. But as a candidate, Trump appeared to endorse changing the cap, promising on social media in September to “turn it around, get SALT back, lower your taxes, and so much more.” If he and Republicans follow through, it would boost how much California taxpayers keep after paying the IRS. 

Christopher Thornberg presents often around California on the state of the economy as founder of Beacon Economics. His outlook for 2025 is a bit rosier than others, forecasting at least 2.5-3 percent growth through the first nine months and low inflation because the Federal Reserve will keep a tight money supply. His message to businesses: “Make hay while the sun is shining.”

That’s because longer term, he sees a darker picture, likening next year to 2006, two years before the Great Recession. “It’s nuts what’s going on in asset markets right now,” he says. The big problem is the federal deficit, which he calls a “screaming crisis.” The takeaway?

Businesses should “avoid assuming that the kind of growth you’re going to see in the next year or two is what you’re going to see for the next five. It all depends on which spark causes the blaze to begin,” says Thornberg. “There are 50 ways it can blow up.”

On smaller issues, Varshney sees mostly good signs next year. More mergers and acquisitions are coming locally and nationally with a new administration that’s far friendlier to those deals. That will spark a lot of hiring by financial firms and others involved in those transactions, Varshney says.  

The housing market is stable, but that steadiness masks variation: New home sales are fine, but existing home sales are “miserable” because of high mortgage rates, he says. 

And those rates aren’t going anywhere. That’s in part because the new administration won’t focus on cutting deficits, which means the federal government will need to float more of the 10-year U.S. Treasury notes that drive mortgage rates, say the economists who spoke for this story.

“Anybody who’s predicting that rates will come back down to 4 1/2  or 4 or 3 percent I think is living in a dream — that basically is not going to be possible,” says Varshney. 

The small view

Locally, the growth engines are familiar. In El Dorado County, professional, business service and health care sector jobs are set to grow 7 percent a year, totaling almost 3,000 new jobs by 2028 as the share of the population over 65 grows, according to economic forecasts by the state’s Department of Transportation. 

Placer County, a perennial powerhouse, is projected to add almost 4,000 jobs in those sectors by 2028. It remains one of the state’s fastest-growing counties and is likely to add between 4,000 and 5,000 residents a year until at least 2028, says the DOT. 

Smaller counties have seen gains too. An April 2024 release from the state Department of Finance noted that Sutter and Yuba counties were among the state’s fastest growing, at 1.9 and 1.1 percent in 2023. Yuba had the state’s highest housing growth rate that year, at 2 percent. 

As for cities, Elk Grove and Folsom are bright spots. In Elk Grove, four different health systems are building new facilities. Also coming is a new $12 million fire station, a $29 million recreation center, a new 65-acre zoo and at least five new housing developments. In Folsom, four of the region’s biggest health care providers also have started or announced that they’ll build outpatient ambulatory care centers there to accommodate the growing population, noted the mid-year 2024 SBR. 

In Sacramento, Metropolitan Chamber president and CEO Robert Heidt points to growth boosters like the $321 million new stadium getting built for Sacramento Republic FC soccer at The Railyards, along with an entertainment venue. The 330-room convention center hotel going in near the SAFE Credit Union Convention Center adds to the region’s momentum, he says. 

One drag, says Varshney, is the cooling labor market given gradual downsizings by anchor employers like Aerojet Rocketdyne, Oracle and Intel, which filed notice with the state in October that it planned to lay off 272 people on Nov. 15. “We have never been able to replace those jobs with equal or better-paying jobs,” says Varshney. 

Meanwhile, tech companies increasingly want people back in the office, which hurts Sacramento’s attractiveness to remote workers. State government has done the opposite, letting people work from home three days a week, which hurts downtown Sacramento, says Varshney. 

The fortunes of one company with operations in the area might indicate the region’s economic outlook. Nationally, Caterpillar is often seen as a bellwether because its sales are tied to large capital outlays. In the first three quarters of 2024, the company’s sales and revenues were flat or slightly declining compared with 2023 numbers. 

Locally, 2024 sales for Caterpillar dealer Holt of California, based in Pleasant Grove in Sutter County, were steady, says CEO Ken Monroe, who sees the region’s economy as “less than robust but still solid.” He’s optimistic about next year’s sales too: Two solid years of rain have meant developers can get water to their job sites, and the region’s promoters, like the Greater Sacramento Economic Council, have kept companies looking at the region as a place to do business. Given the housing backlog, developers will stay busy, which is good for contractors who are Holt’s customers, says Monroe. 

What to do 

Area business experts advise companies to stick to basics in this period. 

That means maintaining a good cash position, especially since interest rates on short-term instruments like Treasury bills remain at 3-4 percent, says Slaton of Leading Resources Incorporated. He also advises paying attention to relationships with lenders. Major bank stocks are all up because under the new administration banks anticipate looser regulations on lending and capital requirements, meaning that better lending terms may be on the way, he says. 

Sac Metro Chamber leader Heidt has time-tested advice for businesses too. “They’ve got to be involved. They’ve got to stay connected to the community they’re in and to the property business improvement districts in their neighborhood, to the chambers in our region, and to other partners,” he says. 

If Sacramento’s R Street is a guide, the region should see at least an up year or two. Almost a thousand new housing units are being built or are planned for the area, according to R Street Sacramento. Since residents spend three to five times more on ground-floor businesses than do office workers, that indicates good times ahead.

The details, especially parking, will get fixed. The city is reviewing the neighborhood’s existing parking analysis, and the partnership has plans for better signage and use of social media to make sure shoppers know about the underused garage space that’s become available since hybrid work started. “We can solve the parking,” says Smira. “That’s the good news.”  

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