MNI INTERVIEW: Virus Flares Haunt Factory Rebound: ISM Chair

By Evan Ryser

     WASHINGTON (MNI) - U.S. factory output jumped in June but may be

stabilizing at relatively low levels as purchasing managers cast doubt on the

sustainability of the nascent recovery amid a resurgence in coronavirus cases,

ISM manufacturing chair Tim Fiore told MNI on Wednesday.

     The ISM Manufacturing PMI for June came in with a monthly jump of 9.5

points, the most since August 1980.

     "The PMI at 52.6 was the strongest number in quite some time," Fiore said.

"It's the best expansion number in over a year."

     But the report is "not really reflecting the difficulty that states and

counties are having in reopening," he said, adding that he would "feel much

better about the report" if virus caseloads weren't flaring up.

     While there has been a noticeable rebound in factory production thus far,

it appears that it may have stabilized at lower levels, Fiore told MNI. "Most

factories are at best running at 50% of what they were in January," Fiore said,

adding that "we really don't know the extent" of the damage of recent virus

cases.

     "We are very concerned about it," he said.

     --TEPID DEMAND

     New orders and product demand grew strongly last month but are doing so

from very low levels after a "record-breaking destructive event," Fiore said.

     "Overall demand significantly improved from the prior month with the index

and all sub-indexes moving strongly in the positive direction," Fiore said. But

"people are still concerned about the long-term strength of a demand-driven

economy," Fiore said.

     The report showed a new orders index at 56.4, up 24.8 points from May, the

strongest gain since January 1948.

     "The pent-up demand is not overwhelming," Fiore said. "If it was, my order

backlogs number would probably be higher, and my new order level would be

higher."

     Additionally, "nobody is looking to make investments," he added. "Not only

do you have the uncertainty with the virus, but there's the uncertainty with the

political situation and the uncertainty with global supply chains with the

tariff situation."

     --HIRING DEPRESSED

     The ISM report's gauge of U.S. factory employment improved by the most

since April 1961 but remained depressed at 42.1, an indication that

manufacturers are continuing to reduce headcount.

     This month, "if the new order (index) stays at around 55, then I'm going to

see a production number at about low- to mid-50s and I'll see that employment

number come up."

     Fortunately, suppliers are getting back on their feet, he said, despite

working with social distancing and "a lot of absenteeism."

     "In the month of June suppliers seem to have stabilized and are making

connections with the buyers and there seems to be a pretty good connection in

the operations supply chain," he said.

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

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