Quality Magazine

Industrial Manufacturers Lose Optimism

November 1, 2005

NEW YORK-U.S.-based industrial manufacturers are considerably less optimistic about the global and domestic economies, according to PricewaterhouseCoopers' most recent Manufacturing Barometer survey. Just 46% of respondents, compared to 70% in the first quarter, are optimistic about the world economy and only 54%, compared to 71% in the first quarter, are optimistic about the U.S. economy. The leading source of this uncertainty is concern over oil and energy prices.

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

The survey shows that higher oil and energy prices have resulted in the following negative effects:

• 88% of manufacturers say oil and energy prices have a strong or moderate negative impact on the U.S. economy.

• 80% view oil and energy prices as having a strong to moderate negative impact on consumer confidence.

• 74% cite oil and energy prices as having a strong to moderate negative impact on profit margins for manufacturers.

Overall, revenue expectations have leveled the past two quarters at 6.5% for the next 12 months, down substantially from the third quarter 2004 rate of 9%. Forty-two percent of manufacturers expect to make major new capital investments during the next 12 months in comparison to 60% the previous quarter. Finally, only 43% of manufacturers are planning to increase their workforce during the next year, down 9% from previous numbers.

"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, Milo says.

PricewaterhouseCoopers' Manufac-turing Barometer is developed and compiled with assistance from the research firm of BSI Global Research Inc.