MNI INTERVIEW: ISM Miss Doesn't Signal Recession - Mfg Chief

U.S. manufacturers are experiencing weaker business growth in the face of global disruptions but the sector will likely sustain moderate growth levels through 2023, and renewed supply troubles may actually lengthen the expansion as demand persists, Institute for Supply Management chair Timothy Fiore told MNI Monday.

"If you look at the headline number you could say that there's indication that it would" lead to recession fears, Fiore said. "But, no, absolutely not. There's no end to demand here. We're still seeing 3-to-1 positive comments on demand" from manufacturers.

While maintaining his view the U.S. manufacturing sector will see continuous growth through the end of next year, Fiore attributed April's surprising 1.7ppt drop in the PMI to 55.4 to seasonal factors.

SUPPLY HEADWINDS

The ISM manufacturing index declined, against consensus expectations for a slight increase, and for the second straight month. April saw a 0.3ppt decrease in new orders and a 0.9 ppt fall in production.

While the ISM manufacturing chief noted risks coming from the Fed, and its front-loading strategy for a series of 50bp moves starting this week, he said port congestion on the West Coast this month and in June is a "serious headwind."

Expecting supplier deliveries, which jumped 1.8ppts in April to 67.2 primarily due to shutdowns in China, to increase more in the coming months, Fiore said transportations systems will add to the pressure. "It's going to be this big demand on road freight when those liners actually show up from China and that transportation network won't be able to support the current situation, which will put a strain on supplier deliveries."

Fiore estimated that could put supplier delivery numbers in the high 60s through the third quarter this year, with inventories back up to around 55. "We should be running 57 to 59 [on the headline PMI] and that's that's why this is a disappointment but if you take the seasonal factors out then we'd be running at 57 and some change," he said.

"We are going to remain supply constrained," he said, expecting congestions to worsen in the near-term, equating it to what was seen in 2021, while pushing back estimates for when supply lines will clear into late 2023. "I think this whole supply constraint is going to kick back in again, and it's just going to prevent our ability to peak but it will stretch out the entire cycle."

EAGER TO HIRE

The April report also showed employment dropping 5.4ppts to 50.9. "The real story here in the month of April is we cannot hire enough people and we almost went into contraction on employment, and it's not for lack of trying," Fiore said, blaming wages. Almost a third of firms commented that workers were quitting, he said, up from 24% in March.

"Eighty-nine percent of the comments said they want to hire, up from 85% in March. I do not see that we are in a demand destruction phase," he said. "I did not see that we're really slowing down outside of the fact that our new export orders are really weak right now because of a temporary issue really in China and probably a more moderate term issue in Europe."

"There are no indications at all about weakening demand anywhere and that is supported by the fact that if you thought there was weakening demand, then you would see people stop hiring," he said.