MNI INTERVIEW: ISM Factory PMI at 10-Year Low on Trade Tension

By Brooke Migdon

     WASHINGTON (MNI) - The Institute for Supply Management's factory index

plummeted to a 10-year low in September, reflecting slowing global demand and

trade disputes with China, the group's survey chairman Tim Fiore told MNI.

     The ISM index fell to 47.8 in September from 49.1 in August, which itself

was the first reading in three years that came in below 50 to signal a

contraction. The September figure is the lowest since June 2009 around the end

of the Great Recession. Fiore said September is traditionally a stronger month

for manufacturing and the further contraction suggests a weak outlook.

     Donald Trump has fought with China's leaders by charging the world's second

largest economy is running up excessive trade surpluses because of an

artificially weak currency and subsidies to exporters. The U.S. president also

says tariffs are a good tool to win concessions from China without hurting

Americans, even as economists say the prospect of a trade war is weakening

global growth. Fiore said trade tensions may keep weighing down the

manufacturing sector.

     "The entire supply market understands that this is not going to be resolved

in the short-term," he said. "There needs to be some relaxation in trade to

really open this thing up."

     Fiore pointed to the new orders index as a sign of weakness. It was little

changed at 47.3 in September, with the reading below 50 signaling a contraction.

     "Demand really begins the story," he said, referencing the softness in new

orders.

     New export orders, a subcategory of new orders, fell 2.3 percentage points

from August to 41 after tracking above 60 a year ago, signaling weakness in

global demand and international trade. The September figure is also the weakest

since 2009. While new export orders do not directly contribute to the PMI, they

are an influential component of the new orders index, which heavily impacts the

headline number.

     Tariffs from China remain a significant issue for supply managers, with 28%

of comments from survey respondents reflecting trade and tariff concerns,

according to Fiore.

     Fiore said managers are responding more to announcements of new tariff

expansions than to existing tariffs. The survey's quantity of tariff-related

comments is directly correlated with government announcements of planned

tariffs.

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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