Mid-America economist: Fed may cease interest rate hikes in September

The Federal Reserve will likely cease rate hikes next month based on slumping economic growth and hiring, a leading Midwest economist said.

After climbing above growth neutral for five straight months, the Creighton University Mid-America Business Conditions Index — a leading economic indicator for a nine-state region including Oklahoma — fell below the growth neutral threshold in July.

"Creighton University's survey results indicate that contrary to the Federal Reserve consensus, a recession in 2023 is still 'on the table.' On average, 45.9% of supply managers expect a recession in the second half of 2023," said Ernie Goss, director of Creighton University's Economic Forecasting Group.

"I expect weak readings from surveys such as Creighton's between now and the middle of September to push the Federal Reserve to cease rate hikes at their interest rate setting committee meeting on Sept. 19-20," he said.

Creighton's Business Conditions Index ranges between 0 and 100 — with 50.0 representing growth neutral — and dropped to 46.1 in July from 50.8 in June.

"This is the lowest overall reading since the beginning of the pandemic in May 2020," Goss said.

The regional hiring gauge also slumped below growth neutral to 45.6 in July from June's 50.0.

According to U.S. Bureau of Labor Statistics data, seasonally adjusted manufacturing employment in the region has decreased for two consecutive months, he said.

Creighton's monthly survey results indicate manufacturing job losses will increase in the months ahead.

"For some time, Creighton's monthly survey has indicated steady employment growth and levels have been maintained due to manufacturers' labor hoarding. However, this month's hiring gauge is a signal of July layoffs in the region," Goss said.

Oklahoma's status

Oklahoma's Business Conditions Index slumped below growth neutral for a second straight month. The July index dropped to 41.1 from 45.5 in June.

Components of the overall July index were: new orders at 42.6; production or sales at 38.6; delivery lead time at 45.3; inventories at 35.4; and employment at 43.4.

According to U.S. International Trade Association data, Oklahoma exports fell by 10.8% in the first five months of 2023 compared to 2022 during the same time period. The state's leading export, machinery manufacturing, contracted by 9.2% from 2022 to 2023, Goss said.

July comments from regional supply managers

The monthly report contains several anonymous comments from managers across the region.

"Major correction down for some commodities. Classic: in the tight supply, high-demand market of the last few years, manufacturers knew no price constraints and over built inventories and manufacturing capacity."

"I think some industries will fare better than others. Those items where discretionary spending drives the market, such as RVs, jet skis, etc., will probably see tough times. We've already seen that in our customer base. Other areas, like construction and agriculture, seem to be unfazed at the moment."

"The cure for high prices is high prices."

"Over the last five weeks, butter has risen on CME (Chicago Mercantile Exchange)."

"Inflation is the liberal way to tax without legislation."

"As long as the current administration controls the narrative, media, global cabal and money supply, they control the timing of a recession, which will not happen unless it's convenient for their political agendas."

"If the Republicans take the administration and portions of Congress in 2024, I can guarantee you that a recession will begin due to the political and economic carelessness of the Democrats and Biden Administration."

"A New World Order nor global digital currency will be good for the U.S. and only brings us closer to another world war at the hands of the global elites!"

Confidence

Looking ahead six months, economic optimism as captured by the July Business Confidence Index was unchanged from June's weak 32.6.

"Approximately 44% of supply managers expect economic growth to decline in the next six months," Goss said.

However, one survey participant said, "Over the next six months, we are expecting a continued slowdown in the economy but not what would be considered a recession. The outlook for 2024 is positive."

Regional inventories

The regional inventory index, reflecting levels of raw materials and supplies, inched up to 52.3 from June's 52.2. "Manufacturing firms have been expanding inventory levels since the beginning of February this year. This has supported moderate sales growth in the region," Goss said.

Other regional survey components

New orders fell to 43.5 from 47.7 in June; the production or sales index sank to 41.3 from 50.0 in June; and the speed of deliveries of raw materials and supplies sank to 47.3 from June's 54.3. The decline indicates a reduction in supply chain disruptions and delivery bottlenecks for the month.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 to produce leading economic indicators of the Mid-America economy.

In addition to Oklahoma, states included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.

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