NAM Forecast Sees Manufacturing Being Challenged by High Heating Costs

In a report released by the National Association of Manufacturers (NAM), the organization's chief economist said high winter heating bills will suppress consumer spending in 2006, posing challenges for U.S. manufacturers.

National Association of Manufacturing (NAM) released its 2006 economic forecast yesterday. The report says that high winter heating bills will continue to suppress consumer spending in the first quarter of 2006, resulting in the economy growing at an annual rate of 2.6 percent - the slowest
quarterly growth rate since the first quarter of 2003. 

In announcing the report's findings, NAM's chief economist Daivid Huether said that historically high natural gas prices and Congress' decision not to authorize development of more natural gas resources pose long-term challenges to U.S. manufacturers. "There is a world price for oil, but not for natural gas," Huether said in a prepared statement. "The continuing failure of Congress to authorize development of more natural gas resources in the Arctic National Wildlife Reserve (ANWR) and the Outer Continental Shelf (OCS) poses a long-term challenge to U.S. manufacturing. Continued inaction could accelerate migration of both manufacturing production and jobs to other nations where natural gas supplies are more plentiful and prices are significantly lower. Certain vital industries, such as chemicals and plastics, are especially dependent upon natural gas."

Huether added that the interruption of energy supplies caused by last year's hurricanes had served primarily to exacerbate the nation's energy vulnerability. According to NAM, 27 percent of oil production and 20 percent of natural gas production in the Gulf of Mexico remain shut four months after Hurricane katrina devastated the region. "We anticipate that the domestic energy production impacted by the hurricanes will not be fully back online until the second quarter of 2006," Huether said. "At this time, energy prices should begin to moderate.  This, coupled with reconstruction efforts in the Gulf Coast areas, will then give the economy a boost."

Huether projected that the overall economy will pick up speed later in the year posting a growth rate of 3.6 percent over the remaining three quarters of 2006. "While this is a respectable pace, it constitutes a deceleration from the 4.1 average pace since the first quarter of 2003, mainly due to a downturn in housing," he said. "After growing by just 2 percent in the first quarter, manufacturing production will accelerate to 5.4 percent growth for the duration of the year due to solid consumer spending and business investment, particularly in computers and software."

 

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