MNI INTERVIEW: US Factory Activity To Shrink Until 2025-ISM

MNI (WASHINGTON) - U.S. manufacturing is unlikely to see a rebound until next year but firms are already laying the foundation for future growth by slimming down inventories and trimming their workforce to align with production needs, ISM survey chair Timothy Fiore told MNI Tuesday

"We have more people not feeling good about the future than we have people feeling good about the future," he said. "We're not really feeling all that optimistic about the future, meaning the end of this year."

Fiore expects the PMI to remain below 50 through year-end before rising in the first quarter of 2025 as the uncertainty surrounding November's elections fade and the upside benefits to the Federal Reserve's interest rate cuts come into view.

Manufacturing growth hinges on demand and isn't likely to surpass 50 until after the new year, Fiore said. The new orders index contracted for the sixth consecutive month in September, up 1.5 points to 46.1. The new orders index hasn't shown consistent growth since a 24-month streak of expansion ended in May 2022. 

"Demand showed a little bit of life here but it is nothing to get super excited about," he said. 

HELP FROM FED

The ISM manufacturing composite was steady in September at 47.2, half a percentage point below market expectations. The underlying composition was mixed, as the employment component declined -2.1ppts to 43.9 and the production index jumped 5.0ppts to 49.8. 

"I like the way everything aligns. We're building the base here for recovery," said Fiore, calling September a "good report" and emphasizing the "stable" outlook. "We remain in contraction" but "we are cleaning up the input side." 

The start of the Fed's easing cycle at its September 17-18 meeting was "hugely positive" and improves confidence. "We see it show up in September in our numbers," Fiore said. 

The September report doesn't signal "anything more dramatic than what we said last month and that is why we're going to need some help here. The order book is depleted and there's no new orders coming up, and we need to get some help from the Fed," Fiore said, adding that he expects another half percentage point rate cut from the central bank in November. 

Fiore noted crosscurrents to the outlook, with downside risks from Hurricane Helene, 50,000 ILA union longshoremen walking off the job at East Coast and Gulf Coast ports from New England to Texas, the Boeing machinists’ strike, and the Mideast conflict. 

"October is going to have a lot of noise" because of the hurricane and from disruptions to transportation, Fiore said. "October is going to be cloudy."