Performance indicators released Friday show Louisiana’s economy shrank by 1.7% over the first few months of 2025 and is moving in what one expert called a “sideways” direction marked by sluggish growth and contractions at both the state and national levels. However, it’s not yet in recession territory, analysts say.
New first-quarter data that became available last week showed the U.S. economy slowed further than analysts had initially thought. U.S. gross domestic product (GDP), which measures the total value of the goods and services produced, shrunk for the first time since 2022 and Louisiana posted the worst GDP rate in the Southeast region.
With a shrinkage of -1.7% GDP for the first quarter, Louisiana dropped in the state rankings from 15th to 38th, according to a U.S. Department of Commerce report released Friday. The sectors performing the worst included minerals extraction (mining, quarrying and oil and gas drilling), construction and finance and insurance.
Louisiana economist Loren Scott said there is broad consensus that President Donald Trump’s tariffs are a big cause of the economic contraction.
Trump’s tariff threats prompted American businesses to stock up on products, causing a surge of foreign imports into the U.S. that far exceeded the production of American-made goods and services, Scott said.
Still, Scott is expecting GDP growth to improve for the second quarter at both the national and state levels. Those figures are set to be released at the end of July.
“The second quarter is gonna be totally reversed,” he said, though he hedged his forecast with a caveat. “If the tariffs stay in place, you’re going to see the economy slow down and inflation creep back up.”
David Dismukes, an economist with Acadian Consulting Group in Baton Rouge, was less optimistic, pointing to signs of inflation already increasing and a tight labor market. He expects both indicators to remain problematic for the remainder of the year with Louisiana continuing to mirror the U.S. economy.
“We’ve been moving pretty much sideways,” Dismukes said. “I don’t think the economy is very strong … though we haven’t quite entered recession territory.”
A U.S. Department of Commerce report released Thursday indicated that inflation ticked up in May. The personal consumption expenditures (PCE) price index, which is the Federal Reserve’s inflation reading to track the prices of goods and services, has risen 3.7% from December, bringing the average annual inflation rate to 2.4% nationally and 2% for Louisiana and the southern region.
The main inflation culprit continued to be food and grocery prices. The cost of food, overall, in Louisiana has increased 2.8% since May of last year. That includes a 3.6% hike on food from restaurants and a 2.2% hike on groceries over the same period, according to the Consumer Price Index.
Core inflation, which excludes food and energy to more accurately measure long-term trends, posted a 0.2% spike in May, increasing the state’s annual core inflation by 2.5% since last year.
Rising prices for goods and services often leads to wage growth. Wages on average began outpacing inflation over a year ago and continue to do so, though they have held steady at 4.3% since February, according to a Fed wage growth tracker.
There are other signs of uncertainty on the horizon. After several months of gains, the average personal income of Americans fell 0.4% in May. And more significantly, consumer spending fell to unexpected levels, according to a Commerce Department report released Friday.
The downturn in consumer spending is what pulled down the GDP, signaling there was more uncertainty in the economy than most had thought, Scott said.
“The business sector doesn’t like uncertainty,” Scott said. “Uncertainty is the bane of economic growth.”
Until now, spending had remained strong throughout the high inflation period that began three years ago. Following steady gains through last December, analysts had estimated slower growth of just 1.8% for the first quarter of 2025, but they missed that mark by more than a percentage point as the latest consumer spending data showed just 0.5% growth. That disparity is what caused the Federal Reserve to revise its first-quarter economic report.
One bright spot has been the labor market. Louisiana’s jobs market finally recovered from the hemorrhaging that occurred during the coronavirus pandemic five years ago. After lagging behind the rest of the country, the state reached its pre-pandemic mark in February with nearly 2 million non-farm jobs, according to data from the Bureau of Labor Statistics. That number has been inching upward, though it remains to be seen if the trend will continue or level off.
Scott said he believes Louisiana can continue to post job gains. He cited a string of recent announcements from large companies moving into the state such as Meta’s planned data center and Hyundai’s steel plant.
Sharing a different take, Dismukes said he doesn’t see much more room for job gains unless Louisiana can grow its population.
Complicating the labor market is a series of high-profile raids by U.S. immigration officials targeting sectors that generally employ migrant workers. One of those is the construction sector.
Dan Mills, CEO of the Home Builders Association of Greater New Orleans, said Immigration and Customs Enforcement (ICE) raids have “absolutely” affected his industry.
“I continue to hear more stories about empty job sites and builders having trouble finding people,” Mills said.
Even documented legal immigrants are not showing up for work because they’re afraid of getting swept up in the raids and accused of having fake documents, he said.
“The fear that is created by these officials showing up in unmarked cars and masks, they don’t know if they’re being illegally detained or kidnapped,” Mills said.
He said the ICE raids are exacerbating what was already a tight labor market with not enough workers in the residential home building sector.
“We’ve seen labor prices increase 38% over the last four years, and we have 350,000 job vacancies in residential contracting nationwide,” Mills said. “Any exacerbation of that is only gonna push that number up.”