Illinois economy shows middling Q4 growth amid U.S. economic uncertainty

The state outpaced national growth for just the fifth time in the past 20 quarters. Long-term growth still shows worrying signs.

Illinois’ economy grew at a so-so 1.1% annual rate in the fourth quarter, but that was more than double the national figure.

Strength in the information and wholesale trade sectors drove Illinois’ growth.

U.S. real GDP grew at just a 0.5% annual rate, weighed down by economic uncertainty, including a federal government shutdown, declining manufacturing and construction investments and reduced government spending.

Illinois’ fourth-quarter growth ranked 13th in the nation and sixth in the Midwest, highlighting the region’s relative resilience under current economic circumstances.

Why did Illinois’ GDP increase?

Information and wholesale trade were the biggest drivers of Illinois’ fourth-quarter economic expansion, combining to account for 1.3 percentage points of the growth rate.

The state’s information sector has been especially strong during the past year, reflecting continued expansion in technology-based industries, particularly in Chicago, recently ranked the fourth-hottest tech hub in the nation.

Wholesale trade was the fastest-growing sector in the U.S. Illinois’ central location and Chicago’s legacy as a major distribution and logistics hub enabled the state to capture much of that expansion.

Key drivers from broader national trends point to slowing momentum in several major areas. Investments declined in state and local government infrastructure and private sector construction, including manufacturing facilities, signaling reduced spending on both private expansion and public projects.

U.S. consumer spending also softened, particularly in services such as health care.

Manufacturing accounts for about 9.3% of Illinois employment, compared with 8% nationally. In the fourth quarter, the sector contributed to a 0.75 percentage-point reduction in Illinois’ growth rate.

Manufacturing is expected to continue facing headwinds in the coming years, with tariffs not helping. Because of its outsized role in the Illinois economy, continued manufacturing weakness increases the state’s risk of slower growth.

Illinois economy remains on shaky ground

Illinois’ persistent long-term economic underperformance remains a serious concern. Since 2019, Illinois’ real GDP has grown by an annual rate of just 8.2%, less than half the national 17.7%.

That gap is expected to continue in the coming years. U.S. real GDP is projected to grow at a 2.6% annual rate in 2026 and 2.1% in 2027, based on the mean of 25 economic forecasts. The Commission on Government Forecasting and Accountability projects Illinois will lag behind at 1.6% in 2026 and 1.1% in 2027.

Illinois’ continued outmigration is a major factor weighing on its outlook, with broader economic uncertainty adding risk. CNBC listed the state among the 10 “most vulnerable in a downturn.”

Illinois does have clear advantages. Like other Midwestern states, it remains strong in manufacturing and agriculture, along with Chicago serving as a global center for finance, tech and tourism.

But high taxes and financial uncertainty have undercut those advantages, making it hard for businesses to invest and expand in the state.

Illinois needs reform

To strengthen its economic position, Illinois must focus on structural reform. State leaders should:

• Reduce the heavy regulatory burden, which ranks fourth in the nation.
• Grow its pool of workers, including through apprenticeship programs and reforming occupational licensing barriers.
• Reduce economic and budgetary uncertainties through streamlined performance analysis and lengthier review times for lawmakers.
• Control high government spending that has led to higher taxation and can threaten economic growth.
• Enact a spending cap to match economic growth to ensure the state doesn’t overspend.

Without structural reforms, any economic improvement will likely be short-lived.