In his monthly Mid-America Business Conditions Index survey of supply managers, Creighton University Economics Professor Ernie Goss, PhD, says the economic index for February is the highest it has been since July 2022.
The index jumped to 56.1 last month, compared to 47.0 in January, coming as a bit of a shock to Goss. “I’ll call it shocking in the sense that I expected a downturn in the overall reading. That was good news on the growth front. Now, we have to talk about the inflation number, but that is not as good.”
Even though they’re dealing with hiring challenges, 35% of supply managers do not expect a recession in 2023, while 10% expect solid growth for the rest of the year.
Approximately 20% of supply managers indicated they raised entry level wages 6%, which is above the rate of inflation, which is the highest it has been since July 2022. Goss says long-term interest rates such as mortgage rates are expected to rise about 7% in March, for the first time in many years. “The Federal Reserve is finding these inflationary pressures much too sticky, pushing up prices, so they’re having to raise interest rates. What’s happening here is Social Security – 70 million Americans get Social Security – and those individuals got an 8-9% raise. We’re also talking about the federal government. Within the Inflation and Deficit Reduction Act that was passed by the Biden administration, we’re now seeing spending and deficit levels well above what we had pre-pandemic.”
Goss says to keep an eye on the yield of the 10-year U.S. Treasury bond in the months ahead, as it could indicate higher inflation concerns.
“The Federal Reserve will raise rates. I expect a 0.5% increase. That is not what the market is expecting right now. The market expects a 25-basis-point increase, I expect a 50-basis-point increase,” said Goss. “Short-term interest rates, as a result, will rise by another half of a point the next day on March 23. You’ll see the prime interest rate rise by 50 basis points, pushing up the price of carrying balances on credit cards.”
Goss says the current numbers are pointing toward sideways movement in the overall economy, and even with the significant bounce for the month of February, “we’re still talking about slow-to-no-growth in the regional economy. Residential housing is in a recession right now. We are probably going to record six straight months of declining housing prices.”
