MNI INTERVIEW: US Mfg On Growth Path Despite Many Risks - ISM

The outlook for U.S. manufacturing growth remains positive and set to persist through next year, despite risks ranging from higher transportation and energy prices, rising interest rates and China's shutdowns and manufacturing sluggishness, Institute for Supply Management chair Timothy Fiore told MNI Friday.

"I'm still of the belief that the manufacturing economy will continue to expand all the way through the end of next year," he said.

Fiore interpreted the Biden administration's announcement to release millions of barrels of oil from the Strategic Petroleum Reserve as a "good thing" that gives consumers and producers a bridge. "That says to me Biden's given the U.S. industry six months to get up to 13-14 million barrels per day, because they can't do it overnight," he said.

"That's probably the issue that I'm most concerned about at USD100 a barrel oil. That's just not good for expanding manufacturing," he added.

The ISM manufacturing index fell 1.5ppts to its lowest level since September 2020 in March to 57.1, amid a 7.9ppts fall in new orders, that Fiore called a "blip." The report showed a 3.4ppt increase in the employment sub-index to 56.3, that Fiore said is the reason supplier deliveries held at 65.4 despite risks from China and the war in Ukraine.

The ISM manufacturing chief also sees risks coming from the Fed. While Fiore doesn't see the Fed reacting too strongly and slamming the brakes on everything, "which obviously would have a ripple effect," he balked that many on Wall Street see the Fed raising rates by 50 basis points at multiple consecutive meetings.

"That would concern me," he said. "We'd see our machinery sector probably come down, big capital goods, transportation equipment might come down as interest rates rise dramatically."

CHINA WATCH

Fiore characterized the shutdowns in China as a short-term concern, but said he is keeping a close eye on recent Chinese manufacturing sluggishness. "We're going to get bumps again, and you're going to see ships back up off the ports, in conjunction with the fact that the Longshoremen are negotiating a new contract with the West Coast ports by July 1 that half the time causes problems."

(See: MNI INTERVIEW: Supply Chains Stuck Longer- Canada Trade Bank)

The ISM chief said the survey's jump in employment may have been a one-off but added that several indicators are showing it is getting easier for firms to hire.

"There was no real indication in any of the comments that there was a slowdown in hiring or freeze in hiring," he said. "People have been back into the market to get a job. If we run out of labor that would be a different situation, and we're probably getting pretty close to that."

The March report also showed prices jumping 11.5 ppts to 87.1, the biggest monthly jump since December 2020. Fiore said the price surge represents firms greater willingness to pass on prices, while the survey showed 75.1% of firms reporting higher prices, up from 56.2% in February, and less than 1% registered declining prices.

"I would expect in the month of April and May to see that number to come off a little bit because nobody sees continual price escalation," he said, adding the medium-term outlook remains the same for moderate late this year. "The reason we had the spike up was really the response to the energy markets globally."