MNI INTERVIEW: US Hiring May Quicken as Benefits End-ISM Chief

U.S. manufacturing employment should accelerate as jobless benefits start winding down later this month across nearly half the country, easing supply kinks that have sent prices surging, Institute for Supply Management manufacturing chair Tim Fiore told MNI Tuesday.

May's report showed record backlogs, record too-low customer inventories, record-long raw material lead times, and the highest supplier delivery numbers since 1974, Fiore said. The ISM reported Tuesday its overall Manufacturing PMI climbed 0.5 points to 61.2 and could have advanced further if the job market was normal.

"Right now labor is holding us back," he said. "We can see the end of this," he said, and "it's just a matter of time before the employment index picks up."

"We're still struggling up the hill and we haven't gotten to the plateau yet," said Fiore about struggles to rehire workers. May's employment index fell 4.2 points to 50.9, which Fiore said should turn around in June.

OBSTACLE COURSE OF SHORTAGES

Jobless benefits are being wound down in at least 24 Republican-led states between next week and July, ahead of earlier plans to offer them until early September. The ISM chief predicted employment should continue to tick up in the next few months helping to bolster the PMI, continuing to print above 58 in the months ahead.

"We are fighting through an obstacle course littered with parts shortages, labor shortages, material price increases, demanding customers and ongoing port, road, and air transportation disruptions," Fiore said. "But we have a whole bunch of inventory to refill, a backlog to work on, and we are in shape to continue expanding."

Fiore's views of cutting off jobless benefits aren't universal. Some Fed economists and international agencies like the OECD aren't as keen on winding down, arguing that does little to boost hiring or could undercut a smooth economic rebound. There is more agreement around the idea that inflation pressures are temporary through the Covid rebound.

The ISM report showed a slight easing of prices, falling 1.6 points from the prior month to 88.0, still around the strongest readings since 2008.

PRICES ARE PEAKING

"We're at the peak on the price side," Fiore said. Input materials are providing a bit of relief as steel mill utilization rates improve and the plastics and petrochemicals sectors reopen more on the Gulf Coast after the freeze in February, he said.

Input price increases appear to have been more transitory, he said. "On the raw material side, it's definitely market supply-demand driven, although when it finally settles down and gets back to equilibrium, I'm not so sure it will be past the 2019 prices, but we'll be lower than where we are today."

How firms raise wages in the tight labor market could prove more long-lasting.

"The sooner the unemployment benefits end, the sooner there'll be less pressure on wages," Fiore said. "The longer it goes on, the more pressure that will be on wages, which you can't take back and that's really inflationary."