Economic woes deepen

Staff -- Industrial Distribution, 9/1/2005

American manufacturers are worried about both domestic and global economies, based in large part on their concern over oil and energy prices.

PricewaterhouseCoopers' recent Manufacturing Barometer survey reported that 46 percent of respondents expressed optimism about the global economy in the second quarter (down from last quarter's 70 percent), and 54 percent declared their optimism about the U.S. economy (down from 71 percent last quarter). The main source of pessimism is oil and energy prices and their potential impact on business.

"Higher oil prices continue to impact manufacturers' 12-month forecast," says Jorge Milo, U.S. leader of Pricewaterhouse Coopers' industrial manufacturing practice. "The reduced economic optimism of senior executives is reflected in lower revenue growth estimates and hiring rates."

Eighty-eight percent of Pricewaterhouse's respondents cited oil and energy prices as having a strong or moderately negative impact on the domestic economy.

Energy's influence was strongly felt elsewhere, with 80 percent of respondents saying that prices would have a strong to moderately negative impact on consumer confidence. Seventy-four percent of these manufacturers cited oil and energy prices as having a strong to moderately negative impact on their potential profit margins.

"In the past, optimism, growth and investment have rebounded after a decline. This upcoming period could be an important measure, as manufacturers continue to battle high oil and energy prices in the foreseeable future," said Milo.

Other survey findings that reflected possible pessimism included the 42 percent of manufacturers who expect to make major new capital investments over the next year—down from 60 percent in the last quarter. In addition, 43 percent of manufacturers said they were planning to increase their workforce over the next year, down from the 51 percent of last quarter.