MNI 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

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