MNI INTERVIEW: US Mfg Price Increases Have Peaked - ISM Chief

U.S. manufacturing price gains likely peaked in June, the Institute for Supply Management chair Tim Fiore told MNI Monday, and the prices index will fall into the 70s in the months ahead as supply and demand move closer to equilibrium.

"I have been comfortable for sure calling this transitory," he said, joining the core of the Federal Reserve in seeing recent price surges as temporary. "I'm encouraged by the fact of the amount of people reporting price increases dropped in the month of July."

The Institute for Supply Management's price index dropped 6.4 points to 85.7 in July, still the 14th consecutive month of expansion. The survey showed 73.8% of firms reporting higher prices, down from 84.8% in June, while 23.8% saw no change and 2.4% registered declining prices.

"In the month of August we'll probably see the [price index] number come down to 80," he said. "The top numbers are really not going to shift in a large part until we see price decreases."

July's ISM report continued to show demand outpacing supply capacity with the headline index slipping to 59.5 from 60.6, slightly missing expectations. The production index fell to 58.4 from 60.8, backlogs are still near record highs at 65.0, and customer inventories are at record lows at 25.0, Fiore said.

EMPLOYMENT REBOUND

But even as the more contagious Delta variant has caused cases to spike it is unlikely to derail a manufacturing jobs rebound, policy makers react with shutdowns or Congress moves to extend the duration of richer jobless benefits being offered until September in most states, Fiore said.

Labor gains will continue with the ISM's employment index reaching 56 in September and possibly 60 in October, he said. The July ISM report showed employment rising in July, with the index hitting 52.9, up from a June reading of 49.9 that showed the first hint of contraction in six months.

"There's more nuisance, there's more inconvenience, but I don't see any shutdowns or any decline in demand," he said about the Delta variant. "My biggest concern is that the government thinks Delta will keep people inside, and they decide to extend unemployment benefits again. If they extend it out again through the end of the year, it will leave us in this labor muck."

Fiore also pointed to a shift in hiring conditions reported by survey respondents, as about 30% of firms indicated they're having difficulty hiring, down from 36% in June and 50% in May. Hiring should also accelerate as schools begin to reopen in the months ahead, he said, expressing optimism.

INFRASTRUCTURE COMPETITION

Despite the near-term confidence, Fiore showed little excitement about lawmakers' progress on a USD1 trillion hard infrastructure package in Washington.

"I don't see this being groundbreaking. It's not like we're spending a trillion dollars in 2021 or 2022," he said. "I don't know that it's going to help a massive amount. There's probably a tenth of a percentage point to GDP maybe, spread out over nearly a decade."

"The other thing is, if the construction industry remains strong it'll be a drag on drivers," he said. "Drivers will get out of the seat of the truck and join construction, which will add continual problems on the transportation side."