MNI INTERVIEW: US Factory Activity On Path For Growth - ISM
MNI (WASHINGTON) - U.S. manufacturing in November contracted at its slowest pace since June and firms are laying the foundation for growth in the beginning of 2025, ISM survey chair Timothy Fiore told MNI Monday.
The ISM manufacturing composite in November increased 1.9ppts to 48.4, above market expectations. The composition of the report was strong, as the new orders, production, and employment components all increased, with prices decreasing.
"I see it as an early indication of things to come," Fiore said. "I don't see this report getting worse in the next three to six months. I think it'll only get better."
Manufacturers "feel better about Q1 next year," he said. "We're going to break 50 for sure in Q1. It might even be in January but it is a weird month because we do a bunch of seasonal reassessments and the seasonal factors tend to be pretty high, but for sure by the February report."
The ISM chief pointed to three strong positive indicators from the November monthly report, including a 5.5ppt jump in manufacturing inventories to 48.1, price growth stabilizing at 50.3, and firms reducing employment at a slower pace. The employment sub-index rose 3.7ppts to 48.1 in November.
DEMAND OPPORTUNITY
Fiore expects manufacturers to "deal with the opportunity to get demand back" over the next couple quarters, before having to deal with inflationary activity that could come in the second half of 2025.
The election of Donald Trump to the White House creates a "confusing" outlook but it's "generally a positive environment for business here," Fiore said. "What's top of mind is finally entering a growth profile again, after a couple years of very, very slow business activity."
Manufacturers have been gearing up for the chance of higher tariffs for months, he said. "My personal feeling is that this is an act by Trump, who's not even in the presidency role yet, to get attention, and he's getting the attention," Fiore said. "The tariff argument isn't so much about USMCA. I think it's more China."
Trump's immigration proposals are unlikely to dramatically impact the manufacturing employment pool, Fiore said. The shedding of headcount in the manufacturing sector has slowed and firms may be revising their workforce goals as growth nears, he added.
"It's fairly clear that we're going to have a grow-out, starting sometime in the end of Q1 and it will continue on, and then the next headwind will be, does that drive inflation?" (See: MNI INTERVIEW: Fed Closer To Slowing Rate Cut Pace - Kaplan)
"If inflation comes from that, we'll deal with that when it happens," Fiore said. "What the Fed is saying is that they'd probably sit tight here for a better part of the first half of next year to see what happens. We'll see another quarter-point cut, maybe another, and then they'll probably sit."
