MNI INTERVIEW: Virus, China Haunt Factory Rebound: ISM Chair

By Ryan Hauser

     WASHINGTON (MNI) - U.S. factory output is likely to remain constrained amid

continued social distancing, ISM manufacturing chair Tim Fiore told MNI on

Monday.

     "Even if all the demand showed up, the factory is not able to produce it

all" Fiore said, and manufacturers are still reevaluating their supply chains

amid heightened geopolitical uncertainty. 

     The ISM Manufacturing PMI came in at 43.1 for May -- the second lowest

since 2009 -- and less than market expectations of 44. Fiore said his biggest

concern is the backlog of orders. 

     "With that backlog remaining in the 38 range, it really feels like demand

is very stagnant," he said.

     --OUTPUT STILL WEAK

     U.S. manufacturers will be able to produce more in June than in May, said

Fiore, "but the question will be, at what operating rate?" Output levels are

"going to come back to probably 25 percent of what January levels were," he

said.

     "Even if a supply chain can get all the materials to the factories, they're

very limited on their output and they will be for quite some time."

     Relaxed social distancing "probably isn't going to be positive long-term,"

he said, but "we're just going to have to get through it because you can't shut

the economy down again."

     As many states began to reopen in May, Fiore said there not yet any major

disruptions. "People are coming back to work, people want to get back to work,

companies are trying to get them back to work," he said, adding that some

manufacturers are concerned about a possible overreaction to the virus.

     --RESHORING CONCERNS

     Some manufacturers are also "looking at what really needs to be in China,"

given lingering risks from tariffs, the virus, and geopolitical tension.

     "It's becoming a much different pasture" for finding foreign suppliers,

said Fiore. "There's a lot more risk there today than there was two years ago,"

and "it's only going to accelerate given the risk profile that you have now in

China, virus and post-virus," Fiore said.

     As a result, near-shoring and on-shoring are already happening, but Fiore

was skeptical that tax incentives proposed by the Trump Administration could do

much to repatriate factories to the U.S. 

     "Mexico has probably a bigger chance of gaining share here," he said.

Mexico may not offer low costs equal to China's, but it does offer shorter

delivery lines, meaning less inventory and less exposure to geopolitical risk,

said Fiore.

--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com

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