- G10 Markets
- Fixed Income
- Foreign Exchange
- Emerging Markets
- MNI Research
- Global Macro
- Political Risk
- About Us
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
- G10 Markets
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
Real-time insight of oil & gas markets
Reporting on key macro data at the time of release.
- MNI Research
- About Us
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.Free Access
MNI INTERVIEW: Soft Landing Could Turn Hard, Says ISM Chief
U.S. manufacturing has contracted for the seventh consecutive month and if consumer confidence and demand do not pick up again in coming months then the sector could move from a soft to a hard landing, according to Timothy Fiore of the Institute for Supply Management.
"I'm arguing that I don't know that this is so good that we're in a soft landing," he said in an interview with MNI. "Do I think that it's going to be a successful soft landing? It doesn't really feel like it."
Fiore, chair of the ISM Manufacturing Business Survey Committee, pointed to a continued slump in consumer confidence, contracting demand, and the Federal Reserve's continued fight to bring inflation down that will require wage growth to roll over.
Fed officials have signaled a preference to skip a rate hike in June before potentially raising rates again at the July 25-26 meeting, though the FOMC appears more divided than at other times. (See: MNI POLICY: Fed Most Divided Since Start Of Hikes, More Loom)
The ISM manufacturing index fell 0.2pp in May to 46.9, slightly below Bloomberg expectations of 47.0. The ISM measure of new orders contracted for the ninth straight month, falling 3.1ppts to 42.6, the lowest since January.
The survey also picked up a larger number of industries contracting strongly, showing more weakness than the headline numbers suggest. The proportion of manufacturing GDP registering a composite PMI calculation at or below 45% increased to 31% in May, compared to 12% in April.
But Fiore told MNI a number of industries were just a "whisker" north of 45%. "With so many big industries so close to 45 that 31% number could have easily been 60% and that would be very alarming," he said, while also noting that he hasn't changed his view of the near-term outlook and expects the headline PMI to remain in a 47 to 51 range in the next few months.
"The mechanics of the manufacturing sector to respond to demand are in the best place that they've been for three years, but demand still has to come back and demand coming back is more of a function of consumer confidence," he said. "Right now consumer confidence is not really strong because people are concerned about the slowing of the economy, the possible loss of jobs, and talk of a recession now for over a year."
The resulting downward pressure on goods prices also appears to be intensifying, with the decline in the prices paid index to 44.2, from 53.2 in March, perhaps leaving it on a closer path to the Fed's 2% inflation target, Fiore said. Readings below 50 indicate contraction.
"There are really two elements of prices dropping," he said. "The material prices numbers are coming down but that's driven by commodity markets and commodity markets are absolutely transitory. The real issue around inflation, structural inflation, is wage growth."
The ISM employment subindex increased 1.2ppts to 51.4 in May. However, if demand does not increase with new orders rising to around 55, then manufacturers may feel the need to layoff workers later this year, Fiore said.
Sign up now for free access to this content.
Please enter your details below and select your areas of interest.
MNI is the leading providerof 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.