An Economic Boom is coming

 

 

Get Ready for an Economic Boom

There is no doubt, in my opinion, that manufacturing played a key role in the 2024 presidential election. The fact is that the U.S. manufacturing sector has been in a recession for more than two years.

The Institute of Supply Management (ISM) recently announced that its manufacturing index declined to 46.5 in October, down from 47.2 in September. Any reading below 50 signals contraction. Also notable, 11 of the 16 industries surveyed reported contraction in October.

Clearly, the folks in the big manufacturing states of Michigan, Pennsylvania and Wisconsin are ready for a change.

And Trump 2.0 is anticipated to ignite that change with a manufacturing turnaround.

The Trump administration is expected to help the manufacturing sector expand via tariffs against unfair competition overseas, lower interest rates (with the Federal Reserve's help) and cheaper energy prices that give the U.S. a natural advantage compared to Europe, Japan and other competitors.

If these can be accomplished, then, in theory, the U.S. should experience a manufacturing boom.

Let me break down each of these categories to explain further…

Tariffs: The concerns over higher U.S. tariffs are unwarranted. The new Trump administration plans to level the playing field and treat our trading partners as they treat us. As an example, if the European Union (EU) slaps a 10% tariff on exported U.S. vehicles and the U.S. only imposes a 2.5% tariff, then the EU has the choice to lower tariffs on U.S. exports or the U.S. can raise tariffs to 10% on European imports.

Interest Rates: Treasury yields jumped in the wake of the Trump victory, with the 10-year Treasury yield rising as high as 4.478% on Wednesday. Yields are rising in anticipation of higher budget deficits and more robust economic growth. Remember, the Fed never fights market rates. So, I now expect that the Fed will "pause" after its 0.25% rate cut on Thursday, keeping the fed funds rate between 4.5% and 4.75% in the near term.

Energy: Trump 2.0 is anticipated to spur a domestic energy boom. This will help onshore manufacturing, as well as fuel the AI cloud computing boom. Remember, the utility grid needs to double over the next decade in order to meet demand for AI and cloud computing. Since the Trump administration is more fossil fuel-friendly, natural gas will likely be utilized to boost electricity output. That will ignite a boom in the natural gas industry, as well as help expand the U.S. utility grid.

 L Navellier