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The U.S. will need to pass another fiscal relief package shortly after Joe Biden and a new Congress are sworn in because faltering demand outweighs concern that more benefits deter people from working, Institute for Supply Management manufacturing chair Tim Fiore told MNI Tuesday.
There will likely another fiscal package "probably in the February timeframe," he said in a phone interview. "There needs to be more than the package from December."
Congress in a divisive fight over the holidays agreed to USD900 billion after more than USD3 trillion in government Covid relief largely ran out. President Donald Trump at the last minute held up the bill to join Democrats in calling for USD2,000 direct checks, up from the USD600 Congress ultimately approved. Republican Senators who could still control the upper chamber of Congress after two special Georgia runoff contests Tuesday night still largely oppose more aid.
While expanded weekly unemployment benefits would likely dissuade some from coming back to work, Fiore said, more fiscal relief would be a net positive by supporting demand and manufacturing. "I would much rather struggle trying to hire people than trying to find orders," he said.
TOUGH SIX MONTHS
The fiscal stimulus helped millions of unemployed Americans cover daily expenses and companies keep workers on payrolls, leading to record economic growth in the third quarter. Biden is due to be sworn in on Jan. 20.
Manufacturing even after recent gains remains fragile, Fiore said, and "we've had a six-month difficult run here."
The ISM reported Tuesday its Manufacturing PMI for December came in with a monthly increase of 3.2 points to 60.7, the strongest since August 2018. Readings greater than 50 indicate expansion in manufacturing, which accounts for 11% of the U.S. economy. Economists had forecast the headline PMI index would slip to 56.6 in December.
Still, the factory PMI fell to a record low of 41.5 in April, and the Fed estimates output is still about 4% below its pre-pandemic level.
The ISM chief predicted positive PMIs in the months ahead barring an unexpected event. Looking forward to the first few months of 2021, Fiore doesn't expect "going back into contraction territory" overall.
WEAK DOLLAR BOOSTING COSTS
Jobs will be a different story, and are unlikely to sustain growth signaled in December when the employment index rose 3.1 points to 51.5, Fiore said. "We are going to go up and down, up and down," he said. "We don't really count hires here, we count who shows up, and January and February is not really a traditionally strong manufacturing period."
Employment "is not going to be a big contributor to the PMI for the first half of 2021 and will remain at that 48-52 level for quite some time," he said.
While vaccine distribution may be moving more slowly than hoped, "we are in a good position here if we can get through the next six months," where absenteeism may start to fall off, he said.
Supply chain bottlenecks are also driving up costs for manufacturers. The prices paid index jumped from 65.4 in November to 77.6 last month, the highest since May 2018.
"It is unbelievable and it just keeps going," Fiore said of the prices index. The weak U.S. dollar and strong international demand for commodities are helping lift prices, he said.