Creighton University Economics Professor Ernie Goss, PhD, expects an interest rate cut in September: he forecasts the prime rate will fall to 8.25% on September 19, 2024.
In his June Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, Dr. Goss shared the following key takeaways from supply managers.
According to Dr. Goss, there is weakness in the regional and manufacturing economy as the overall index continues to hover around growth neutral.
“It’s only the third time this year that the reading has been above growth neutral,” said Goss. “Even when it has been above growth neutral, it has only been slightly above growth neutral. When it has been down below growth neutral, it has only been slightly below growth neutral. It’s an odd year so far for 2024.”
Dr. Goss says that while the manufacturing sector is moving sideways to down, approximately half of manufacturers surveyed have reshored a portion or all of supply chain purchasing from abroad, which is a good signal. Though, when it comes to available jobs, the manufacturing sector is struggling.
“When you look at the Bureau of Labor Statistics numbers, we’ve added about 1.8% jobs over the last 12 months. That’s 1.8% of the total jobs. Manufacturing jobs, we’ve probably added nothing over the last year – in fact, they’re down,” added Goss.
Regarding inflation, while elevated inflationary pressures persist, Dr. Goss anticipates a federal rate cut in September due to the weakening economy. He is keeping an eye on month-to-month changes regarding the Consumer Price Index and Producer Price Index.
“Both the CPI and PPI, in terms of the core, are well above the Fed’s target. The inflation rate goal still remains well above what the feds are shooting for, so we still got some miles to go before we can sleep in terms of the inflation gauge,” said Goss.
Dr. Goss expects long-term interest rates to move sideways to slightly higher. He is keeping an eye on the bond market as that could determine the potential for a recession.
“Keep an eye on the 10-year bond yield. If the yield moves below 4%, down to 3.8%, that’s a real recession concern. I would say if it moves down like that, we’re already in a recession or going to be in a recession. If it goes back up to 4.8%, then take my recession fear off the table. It’s more inflation.”
Inflationary pressures and a potential rate hike could be fueled by Freddie Mac and Fannie Mae, which seek permission to return to the home equity mortgage market. This has not occurred since 2008-11.
Lukas Partners PR supports Dr. Goss to create and distribute a monthly video that summarizes his Mid-America Business Conditions Index. You can view Dr. Goss’ June recap video at: https://bit.ly/MidAmericaBCIJune2024YouTube.
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