MNI INTERVIEW: US Mfg Growth To Stay Solid Despite Omicron-ISM

U.S. manufacturers are experiencing weaker business activity in the face of omicron but will likely sustain moderate growth levels into 2023, Institute for Supply Management manufacturing chair Tim Fiore told MNI Tuesday.

"I don't think this knocks us off the path at all," he said about omicron. "This is just a little bit of a blip but I do think we're really not looking at much over 60 anymore [in the PMI]. I think we're gonna run strong right into 2023."

The headline for the ISM survey has now declined in three straight months to 57.6 in January, the lowest reading since November 2020, but remained in solid expansion territory. The prices index jumped again, up 7.9ppts to 76.1, reversing some of the drop reported over the prior couple of months and likely delaying improvements in new order levels, he said.

"What happened here is that we've all been negotiating prices in the September-October timeframe," he said, and "those prices go into effect usually on January 1st." The survey showed 58.7% of firms reporting higher prices, up from 47.4% in December.

"I don't think that was an indication of prices accelerating a lot higher than what we saw in November and December," Fiore said. "All indications are that the price levels are remaining at elevated levels but they're not dropping and they're not increasing either. I don't think this changes the narrative at all."

Fiore, noting improvements in employment and transportation, said there's nothing to indicate a reversal in the trend of easing prices. "With all that being said, there's absolutely no reason why prices would go up -- outside of an international confrontation, which last month was a lot less likely than now. Right?"

UNCERTAIN TIMING

Still, the ISM chief declined to put dates on the price-easing process. Issues such as Ukraine, the Chinese Lunar New Year, and negotiations for a new contract with the longshore workers union on the U.S. West Coast could add to uncertainty, he said.

"The labor contract negotiations on the West Coast that are now starting will only cause all your buyers to advance for material out of Asia even even more so," he said. It may take until after Chinese Lunar New Year in 2023 to see ports and supply chains back to normal, Fiore said. (See: MNI INTERVIEW: U.S. Port Backlog Seen Dragging Into Next Year)

Production and new orders growth slowed, though there were signs that supply-side conditions improved as employment increased by 0.6ppts to 54.5 and comments about transportation improved slightly, he said.

The supplier deliveries index moved modestly lower after larger drops in earlier months but it continues to run at a high level, he said, which signals that supply chain issues are persisting, even if they have eased somewhat.