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Free AccessMNI INTERVIEW: ISM Chair Sees 18-Month Factory Rebound
--ISM Mfg chair Tim Fiore Says Bottom of Trough Is Near
By Ryan Hauser
WASHINGTON (MNI) - WASHINGTON (MNI) -- Institute for Supply Management
manufacturing survey chair Tim Fiore told MNI Friday that the bottom of the
downturn in U.S. manufacturing is in sight, but a recovery is likely to be
protracted with 2020 price and employment levels ending the year still at
substantial lows.
"We can see the bottom of the hill," said Fiore, but said "we're not there
yet," adding that he sees the current downturn "as an 18-month problem."
May is likely to be a month of transition, he said, as essential and
non-essential workers return to their jobs at different rates. But "June is
going to be a better month," Fiore said, as "many if not most of the
nonessential service industry sectors will be back to work."
According to ISM's Semiannual Economic Forecast released earlier Friday,
U.S. manufacturing revenues are expected to drop 10.3% year-over-year alongside
a fall in operating capacity to 75.9% from 84.2% a year ago, led by aircraft
manufacturing.
Entertainment and retail will suffer the largest hits on the services side,
said Fiore.
--DISINFLATION
Manufacturing prices are also expected to to fall 2.8% by the end of 2020,
putting disinflationary pressure on the economy at a time when Federal Reserve
interest rates are already near-zero.
"We're now into a deflationary mode here where people are going to have to
use their price leverage to either maintain or gain share and keep their
factories full," said Fiore.
Long-term, however, the disinflationary pressure "is more a function of the
federal deficit and the Federal Reserve infusing a ton of money into the
economy," which Fiore called a "great move," comparing it to a "mattress when
people are coming out the window."
Fiore said the near 20% decline in manufacturing capital expenditures
should also "drive price decreases at the cap-ex manufacturing level."
--MANUFACTURING JOBS
Fiore said the April jobs report, the worst since 1939 when the index
began, was a "positive indicator" as it suggests we may be near the bottom of
the payrolls slump, though he said May will also likely show a 25%-30%
reductions in manufacturing payrolls levels.
The ISM survey forecasts a -5.3% reduction in manufacturing payrolls,
suggesting that "there's a belief in the community that we're going to recover
some of those jobs," Fiore said.
Productivity, however, "is clearly going to be an issue," said Fiore, and
"even if the demand was there, we couldn't restaff those factories at the same
level we were at in December and January."
Fiore said increased automation in manufacturing would be a long-term
investment trend, but only one that would be "deployed when the economics work
and the technology is able to keep up with it."
"People have to find another way" to keep manufacturing going during
downturns, said Fiore, "otherwise they're taking their factories and doubling
the size of the footprint, which isn't realistic either."
"In the end, it comes down to the effective utilization of capital," he
said.
--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com
[TOPICS: M$U$$$,MT$$$$,MX$$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.