MNI INTERVIEW: Fiscal Block Threatens Factory Rebound-ISM

The U.S. factory recovery is jeopardized by the failure of Congress to deliver fiscal relief and without it the industry may get stuck in a see-saw pattern, Institute for Supply Management manufacturing chair Tim Fiore told MNI Thursday

"We are coming out of a manufacturing recession," he said. "But the problem is we are now entering into October and November and the political parties are deadlocked," he said, and manufacturers "lack optimism" about fiscal support for payrolls.

Fiore cited bad news from Thursday's Labor Department report showing 26.5 million Americans or nearly 14% of the workforce are on unemployment benefits. The ISM factory index released Thursday also showed the employment measure continuing to show contraction like it has for more than a year, though this time it moved close to positive territory.

The overall manufacturing PMI for September unexpectedly fell to 55.4 from 56 in August, which was the highest since November 2018. Readings greater than 50 show expansion, and September was the fourth straight month above that mark.

CATERPILLAR RIDE

"We are like a caterpillar, you know caterpillar rides at the carnivals where it goes up and down, up and down, not big ups, not big downs, but kind of level. This is the first month that has verified that," Fiore said.

The fiscal warning echoes Fed officials calling for more spending to sustain a recovery that while faster than expected needs support with a vaccine more than a year away. Industries have also asked governments for a stronger public health response and legal immunity against lawsuits from workers who return and fall ill.

"We've got orders coming in and we can respond," Fiore said. "It's harder than it used to be, but we can do this," he said, pointing to "strong" demand.

Risks to factory growth come from Capitol Hill and not the virus itself, Fiore said. "We are more optimistic that we can continue to run even though we have sicknesses in our workplaces and our suppliers continue to struggle with absenteeism," he said.

SPREAD FROM SERVICES

Repercussions of weak fiscal stimulus may show up sooner in the services industry and spread to manufacturing a few months later, Fiore said.

While it's unrealistic to provide potentially years of massive support for airlines until vaccines are widely available, governments should "target industry sectors," for aid, the ISM chief said.

Joblessness, weak investment and more Covid cases may frustrate the factory recovery into next year, TD Bank senior economist Sohaib Shahid wrote in a report. "Despite continued improvement in the manufacturing sector, the recovery is slowing down," Shahid said.