MNI INTERVIEW: ISM Chief Sees Bumpy US Manufacturing Growth

U.S. manufacturing remains on pace for weak expansion this year even after the Institute for Supply Management's index fell back into contractionary territory in April, survey chair Timothy Fiore told MNI Wednesday.

"We're still on the same growth trajectory, but we have high prices to deal with," he said in an interview, adding another reading of less than 50 in May is possible.

The ISM composite slipped to 49.2 from 50.3 after breaking a 16-month streak of contraction in March. The new orders index returned to contractionary territory at 49.1 after one month of expansion and the production index was 3.3 points lower than March's figure of 54.6. The employment index rose 1.2 percentage points to 48.6.

"We're recovering from about 16 months of contraction," Fiore said. "In January, we started to recover and this is the fourth month of recovery, but it's slow, it's weak, and it's going to be bumpy. That's kind of what we saw this month."

INFLATION CONCERN

Within U.S. manufacturing there has also been a change in sectors experiencing growth or contraction, he said. Thirty-six percent of manufacturing GDP contracted in April, with 4% at a 45 or less in the ISM PMI. That compares with December that saw 85% of manufacturing in contraction, and 48% under a 45 PMI.

Only 12% of ISM's survey comments referenced softening demand, he said, one of the lowest measures in three years.

The price index rose to 60.9 in the month, the highest since the middle of 2022, a signal goods prices could be on the rise again in the future. Survey respondents indicated inflation is still a concern with 31% of respondents reporting higher prices. The figure has climbed from 18% in February.

The price index is unlikely to have risen due to increasing oil prices and instead Fiore pointed to other commodities. "Crude oil hasn't gone up yet. There's anticipation of that coming, but it really didn't change much in April compared to March," he said.

DELAYING RATE CUTS?

The ISM report showed 18 commodities reported up in price versus 1 reported down in price, and 4 reported in short supply.

With higher prices, Fiore added he expects the Federal Reserve to be on hold longer through most of the year and sees additional rate increases as unlikely.

"I don't think they would be all that happy with the prices number here," Fiore said of the Fed. "We're still sitting in a position where we're not looking at increased rates. You're probably looking at delaying any kind of cuts." (See: MNI INTERVIEW: Fed Poised For Higher For Longer Stance - S&P)

"From a manufacturing standpoint, there's no real danger as long as we are not raising rates."