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Speaker 1: We're joined by the man to put all the numbers together,

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Speaker 1: Tim fur A. He is the chair of the ISM

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Speaker 1: Manufacturing Business Survey Committee. Tim, great to see you as Eva.

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Speaker 1: Thank you very much for being with us. What's the

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Speaker 1: instance analysis on the numbers?

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Speaker 2: So output, which is a production and employment adjusted to

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Speaker 2: the reduction in demand that we've seen now for nine months,

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Speaker 2: and it's definitely more in line with what the demand

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Speaker 2: has been. The net result is that for the first

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Speaker 2: time in quite some time, we're seeing layoffs come more

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Speaker 2: into play in the month of June than we have

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Speaker 2: since a pandemic recovery. So, you know, I've been tracking

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Speaker 2: the hire the force managed ratio, which is who's hiring

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Speaker 2: and who is trying to manage their head count down.

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Speaker 2: This is the first month that I saw shift in

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Speaker 2: the amount that layoffs were of that force managed ratio

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Speaker 2: compared to freezers and nutrition. So we are probably in

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Speaker 2: a little bit of a transition here. I don't know

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Speaker 2: that we've hit the bottom yet, but I think the

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Speaker 2: fact that output is better aligned with demand is a

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Speaker 2: good thing.

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Speaker 3: Moderate term, Tim, what kind of timeline are we looking

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Speaker 3: at here? I mean, there's still a little bit of

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Speaker 3: a consensus building on Wall Street that the rward, that

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Speaker 3: recession that we've been waiting for for one to two

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Speaker 3: years is going to hit at the end of the year.

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Speaker 3: Is that a timeline that lines up with the data

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Speaker 3: you're seeing well.

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Speaker 2: Our forecast in December said that the second half of

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Speaker 2: this year would be much stronger than the first half.

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Speaker 2: By the time we updated out of May that that

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Speaker 2: opinion had kind of diminished a bit. I do have

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Speaker 2: quite a few comments that are indicating that they see

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Speaker 2: really the downside probably trophy here in the first quarter

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Speaker 2: next year. But I think overall the panels still feels

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Speaker 2: that Q late Q three, late Q four, or maybe

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Speaker 2: the trough, but it remains to be seen. I mean,

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Speaker 2: we have not hit the bottom yet. We have some

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Speaker 2: really weak numbers on the input side, which is very positive,

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Speaker 2: meaning that the supply base is very accommodative. Mike pointed

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Speaker 2: out the fact that pricing took another step down and

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Speaker 2: that was really across the board, and that's a very

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Speaker 2: positive thing. In addition, our lead times are still coming down, slowly, sluggishly, reluctantly,

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Speaker 2: but they're still coming down. We should encourage buyers to

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Speaker 2: get back in the market and I think on the

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Speaker 2: demand side, I mean, you know, we saw a negative

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Speaker 2: on the new export orders. It sagged more than it

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Speaker 2: did in the month of May. Although Mike mentioned that

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Speaker 2: the new order number didn't sag as badly as made,

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Speaker 2: it's still low at forty five. The only positive thing

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Speaker 2: on the demand side is that our panelists think that

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Speaker 2: they're the level of inventories that their customers have of

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Speaker 2: their product is at the low end of too high now,

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Speaker 2: which is pretty good. Yeah. So you know, overall here

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Speaker 2: demand is not there, and if demand is not there,

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Speaker 2: factors are having to make the tough decision for the

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Speaker 2: second half about output plans, absorption, and most important headcount.

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Speaker 2: I think the month of June we've seen some movement

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Speaker 2: in that direction.

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Speaker 1: Okay, so demand is subdues, but the input costs into

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Speaker 1: the business are also coming down as well. Price is

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Speaker 1: paid employment, Tim, what's the reef for margins?

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Speaker 2: The reef for margins, I think you guys have seen it.

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Speaker 2: I think margins are off ten to fifteen percent compared

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Speaker 2: to the first quarter. I think, you know, the ability

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Speaker 2: to pass through pricing increases is much more difficult. We

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Speaker 2: have a lot more comments and panelists that are indicating

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Speaker 2: that there are significant battles occurring out of the purchase

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Speaker 2: order placement front about what everybody's going to pay for goods.

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Speaker 2: You know, the fact that not only the energy markets

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Speaker 2: but the basic commodity foundation markets are all down in

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Speaker 2: all areas. I think it is a supporting fact that

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Speaker 2: allows us to get back to a comminator pricing level

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Speaker 2: that allows people to go ahead and re up. But

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Speaker 2: I think the problem here is that there's there's still

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Speaker 2: no demand and we burned off the overordering. The backlog

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Speaker 2: is still contracting at a very strong rate. You know,

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Speaker 2: there's five things that I watch that's going to indicate

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Speaker 2: when we see a turnaround. Only one of them is positive,

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Speaker 2: and that's on the lead time side. And I think

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Speaker 2: you know, I've been watching the percent of industries that

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Speaker 2: are contracting under forty five, which to me is a

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Speaker 2: very alarming number, and we're now at forty six percent.

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Speaker 2: That's the highest numbers that have been tracking it. And

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Speaker 2: last month I think we were twenty seven percent. So

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Speaker 2: our top two industry sectors, chemicals and computers are contracting

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Speaker 2: the strongly of the top six, and you know, the

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Speaker 2: two of those together, there's thirty percent of the manufacturing GDP.

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Speaker 2: So you know, until we see that chemical products area

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Speaker 2: turn around and come back up about forty five, see

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Speaker 2: a little bit of a recovery here on the computer

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Speaker 2: electronics side, we're going to be hanging at this low level.

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Speaker 3: Tim, I wanted you to expand on the point that

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Speaker 3: you made in terms of the commodity complex. Specifically, one

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Speaker 3: of the big narratives we've had in the last I

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Speaker 3: want to say a couple of hours of newsflow has

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Speaker 3: been the idea of Saudi Arabia, Russia, even the UAE

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Speaker 3: trying to put some sort of price floor into the

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Speaker 3: oil market. If we continue to see those efforts actually

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Speaker 3: push oil prices and potentially other commodity prices higher, what

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Speaker 3: would the read through into the manufacturing sector look like.

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Speaker 2: Well, I think they may try to do that through

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Speaker 2: a stricting output, but you know, if there isn't a

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Speaker 2: strong demand that we have pre pandemic, then they're going

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Speaker 2: to push it really hard and not get a lot

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Speaker 2: of recovery here, and there'll be big battles, most likely

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Speaker 2: within the OPECH plus who's actually going to cut back.

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Speaker 2: So you know, right now, it looks like energy is

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Speaker 2: not an issue. It's at a proper price support for

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Speaker 2: you know, whether it's natural gas or whether it's petroleum products,

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Speaker 2: it seems to be pretty accommodated. You know, they're going

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Speaker 2: to try to take more capacity out primarily because Chinese

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Speaker 2: is not consuming, but I'm not so sure that's going

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Speaker 2: to have the eighty five nine dollars a barrel price

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Speaker 2: that they're looking for. At the same time, and when

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Speaker 2: we got concrete, we have steel, we got copper, we

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Speaker 2: got mouminum all down, so and you know, that's all

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Speaker 2: probably wanted to get there. It's probably not down strongly,

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Speaker 2: but it's still not at least it's not rising, which

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Speaker 2: you know when you're when you're counting inflation. That's really

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Speaker 2: the important one.

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Speaker 1: Tim is the era of labor hoarding it now over.

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Speaker 2: Well, we still have a significant amount of people quitting,

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Speaker 2: surprisingly and we still have you know, more than one

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Speaker 2: to one of our panels who are reporting that they're

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Speaker 2: still hiring. So we're presenting about one point two to

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Speaker 2: one hire versus the force managed, which is about the

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Speaker 2: lowest level that we've had since something track this thing.

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Speaker 2: But there are still companies hiring, so you know, but

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Speaker 2: our top six into the other four industries in the

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Speaker 2: top six are pretty much hoping around fifty, which means

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Speaker 2: you're stable and that's a pretty good thing. In the meantime,

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Speaker 2: coming thos and computers are down in the low forties,

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Speaker 2: and that's that's really what's ragging is down. So the

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Speaker 2: summary on this is we need demand to come back,

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Speaker 2: some amount of demand right now. The output side is

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Speaker 2: his revenue, which is production which equals revenue as well

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Speaker 2: as employment is now aligning with a low demand, which

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Speaker 2: means and that the revenue is going to be lower

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Speaker 2: in the second half. Profit is going to be more challenging.

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Speaker 2: As we talked about it for the last couple of months,

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Speaker 2: probably a decent indication here now that we'll start to

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Speaker 2: see more.

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Speaker 3: People get let go, certainly something we're going to be

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Speaker 3: keeping an eye on. Tim Fiori, chair of the ISM

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Speaker 3: Manufacturing Business Survey Committee, joining us for that instant analysis