Capital Markets

Energy Costs Top Manufacturers’ Concerns

Rising prices contribute to top executives' pessimism about the U.S. economy, according to PricewaterhouseCoopers.
Stephen TaubJanuary 30, 2008

Industrial manufacturers are feeling downbeat.

In a recent survey of senior executives in manufacturing, just 29 percent said they’re optimistic about the prospects for growth in the coming year. This finding was down from 64 percent one year ago and reflects a negative outlook not seen in five years.

Indeed, manufacturers currently have the lowest level of optimism about the U.S. economy since the inception of the PricewaterhouseCoopers’ Manufacturing Barometer in the third quarter of 2003.

What is bugging this group the most? As was the case in prior quarters, two-thirds of the 60 senior executives of large, multinational U.S. industrial manufacturing companies surveyed said oil and energy prices are the leading barrier to company growth.

In addition, concerns over lack of demand (61 percent) and a lower monetary exchange rate (44 percent) both showed significant increases as potential barriers to future growth.

PwC noted that the majority of manufacturers concerned about oil and energy also showed increased concern for other key barriers to growth, including demand (67 percent, 17 points higher than a year ago); competition from foreign markets (51 percent, 21 points higher); and monetary exchange rates (49 percent, 14 points higher).

On the positive side, more executives are planning major new investments of capital (44 percent, 9 points higher) and M&A initiatives (49 percent, 14 percent higher).

“Amidst anxieties about a possible recession and the impact of the credit crunch, U.S. manufacturing executives are increasingly pessimistic about the domestic economy,” said Barry Misthal, partner and industrial manufacturing sector leader for PwC. “With concerns about higher energy prices and a lack of future demand at all-time highs, bright spots are becoming harder to find in an increasingly dim outlook.”

Beyond the U.S. borders, the surveyed group has a more positive outlook. Nearly two-thirds (64 percent) of manufacturers responding last quarter had a positive outlook on the world economy, in line with 69 percent of executives who cited international optimism in the fourth quarter of 2006. Only 6 percent of respondents cited a negative outlook about the international economy during the fourth quarter of 2007.