US manufacturing remains flat under oil prices

17 July 2008 18:50  [Source: ICIS news]

WASHINGTON (ICIS news)--The US manufacturing sector is likely to remain flat for the rest of this year and production executives overwhelmingly say record-high oil and energy prices are hurting their business, a leading sector survey said on Thursday.


“The manufacturing sector is expected to face significant challenges in the near term,” according to the Manufacturers Alliance in its quarterly business outlook survey.


“This quarter’s results unequivocally reflect slowing activity in manufacturing and offer little prospect for an overall increase in activity over the next three months,” said Donald Norman, an alliance economist and co-ordinator of the survey.


Elsewhere, the survey summary said that “overall manufacturing activity is expected to remain flat over the next three to six months”.


The US manufacturing sector is a major downstream consumer of chemicals and chemicals-based products.


In large part, manufacturing executives surveyed by the alliance said that the high price of oil and related energy products is driving business down.


The alliance said that more than 83% of responding executives said that the impact of high oil prices on production costs is “moderate” or “significant”. That response level was higher than the nearly 79% of executives who said logistics would have a moderate or significant impact on their output.


More than 50% of the executives surveyed said they expect oil prices to continue in the price range of $125-200/bbl. Although no responding executive expected oil to exceed $200/bbl, only 13% said they thought oil would ever fall below $100/bbl again.


The alliance said its composite index for overall US manufacturing activity fell to 50 in its second-quarter survey, a decline of 7 points from the 57 score recorded in the first-quarter 2008 survey.


The composite index is made up of 12 categories that measure manufacturers’ orders, inventories, anticipated shipments, backlogs and profit margins, among others.


The alliance said the index of annual orders, based on a comparison of expected orders for all of 2008 with those of 2007, slipped to 50% in the second quarter from 68% in the first quarter.


The quarterly orders index, matching new orders in the second quarter this year with the year-ago quarter, fell to 46% from 58%, the alliance said.


Manufacturers’ expectations of prospective shipments to domestic US buyers in the third quarter this year declined to 52% compared with 62% in the first quarter.


However, the measure of producers’ expectations of prospective shipments to foreign markets for the third quarter this year rose to 89% from 80% in the earlier survey.


It is export sales that are expected to sustain US manufacturers over the second half of this year, the alliance said.


“Most of the manufacturing sector is holding up  much better than it did in the last recession largely because non-domestic business continues to grow,” said Norman.


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By: Joe Kamalick
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