The ISM manufacturing index is likely to rise further in coming months after climbing to a six-month high in August that still left the measure well in contraction territory, Institute for Supply Management chair Timothy Fiore told MNI Friday.

"Outside of any external influence, geopolitical issue or a major change in the financial markets, we should continue to climb out past 50 at some point in the next three to four months," he said of the threshold that separates growth from shrinkage in the sector.

"There are signs here of slow growth," Fiore said. "We're starting to move towards normality. The U.S. is sitting pretty good at this point," said the ISM chief, who is no longer expecting a tailwind from China and the international outlook.

The ISM manufacturing index increased 1.2pp to 47.6 in August, slightly better than expectations and the highest since February. Still, August was the tenth consecutive month the ISM reading was below 50 indicating contraction.

MARGINAL CONTRACTION

The rise was driven by increases in the employment and production indices, to their highest levels since May. Employment was up 4.1pp to 48.5 and production was up 1.7pp to 50.

"Fewer industries are contracting stronger than they were in July," Fiore said. "We're still contracting, but we're not contracting strong. We're contracting marginally."

There was a drop-back in the new orders index to 46.8, from 47.3, concerning some market analysts. But Fiore said the non-seasonally adjusted new orders measure was higher and he stressed that backlogs are improving.

"We hit the bottom on new orders in May," he said. "I can see the new order number climbing."

The August ISM report also showed employment bouncing 4.1pp to 48.5 but Fiore said companies are rightsizing to attain lower levels of labor. "Panelists companies have indicated that they can probably get there easier through attrition, rather than than layoffs or even freezing," he said. "I think we're sizing around at a lower output."

The prices subindex jumped 5.8pps to 48.4. "I think prices are about where we're going to be," Fiore said. "I don't see them coming down further unless there's a collapse in demand and there's no sign of that. There's a lot of comments here about arguments around prices and whether customers will take the price or not." (See: MNI INTERVIEW: Hawkish Fed Pause In Sept - Ex-Staffer Trezzi)