Lee & Associates Industrial Market Report Q1 2025

Q1 2025 U.S. and California Economic Update – Employment, Ports, GDP, and Industrial Real Estate

The U.S. labor market showed resilience in March 2025, with nonfarm payrolls increasing by 228,000 jobs according to the Bureau of Labor Statistics. The national unemployment rate held steady at 4.2%. Key sectors fueling growth included health care, social assistance, transportation, and warehousing, while retail saw a modest boost following the return of striking workers. Federal government employment, however, posted a decline.

In California, the job market maintained strong momentum in February 2025, marking 58 consecutive months of employment growth. Since April 2020, California has added over 3 million jobs, averaging 53,167 new positions per month. The state’s year-over-year nonfarm employment rose by 78,200 jobs, keeping the unemployment rate steady at 5.4%. Of California’s 11 major industry sectors, only three posted net job gains—led by Private Education and Health Services, which added 18,400 jobs, driven by private K–12 schools and outpatient care services.

Meanwhile, the Los Angeles metro area experienced a contraction, shedding 13,900 nonfarm jobs year-over-year, reflecting a 0.3% decline. Unemployment in the region increased slightly to 5.9%. Sectors facing the steepest losses included manufacturing (-13,600 jobs), wholesale trade (-4,700 jobs), and retail trade (-3,500 jobs). However, transportation and warehousing added 1,800 jobs, signaling modest growth.

The industrial real estate sector remained closely tied to port activity. The Ports of Los Angeles and Long Beach continued to post strong container volumes through Q1 2025. The Port of Los Angeles processed 2.5 million TEUs year-to-date, a 5.2% year-over-year increase, while the Port of Long Beach handled an identical volume—a 26.6% increase. These gains were largely fueled by importers rushing to get ahead of newly implemented tariffs and cargo rerouted from labor-disrupted East and Gulf Coast ports.

E-commerce continued to shape retail trends. According to the U.S. Census Bureau, online retail sales totaled $308.9 billion in Q4 2024, up 2.7% from the previous quarter and 9.4% year-over-year. E-commerce accounted for 16.4% of total retail sales in Q4, and full-year 2024 e-commerce sales reached $1.19 trillion—an 8.1% increase over 2023.

While the U.S. economy grew at an annualized rate of 2.4% in Q4 2024, early forecasts for Q1 2025 suggest a sharp slowdown. The Atlanta Fed’s GDPNow model anticipates a -2.2% annualized contraction, potentially marking the first quarterly decline since early 2022. The deceleration is attributed to weakening consumer spending, reduced business investment, and the effects of new tariffs on trade.

As of April 2, 2025, a new system of tariffs and trade restrictions began reshaping global commerce. Consumer behavior is already shifting: 24% of Americans have canceled major purchases, and another 32% are delaying them. The IMF downgraded the U.S. growth forecast to 1.8%, citing tariff uncertainty. Goldman Sachs revised its 2025 GDP projection to 0.5%, with a 45% recession risk, while Vanguard expects growth below 1%.

Inflation remains volatile. Although the March CPI showed a 0.1% month-over-month decrease, the New York Fed now forecasts inflation to rebound between 3.5% and 4% due to tariff-driven price increases.

The manufacturing sector is feeling the pressure. The ISM Manufacturing Index fell to 49, signaling contraction. The NY Fed’s Empire State Survey recorded a six-month outlook of -7.4, its lowest since 2001. Companies like GE Aerospace and U.S. automakers are warning of cost spikes and declining sales.

Industrial real estate could benefit from longer-term supply chain shifts. If reshoring accelerates, markets such as Arizona, Georgia, Illinois, and those near the U.S.-Mexico border could see increased demand for manufacturing and logistics space.

Importers, especially small-to-midsize firms, are under severe pressure. New 145% tariffs on Chinese goods are disrupting cash flow, raising input costs, and threatening business continuity. Without relief, many may exit the market, reducing competition and driving up prices for consumers.

Outlook:
The remainder of 2025 remains uncertain. While industrial real estate may benefit from supply chain reorganization, rising costs, geopolitical instability, and economic headwinds may dampen momentum across sectors. Strategic adaptation and market resilience will be critical in the months ahead.