Business: Rising material, energy costs concern North American manufacturers

In spite of  recent economic news, North American midsized manufacturers seem “cautiously optimistic,” says survey.

By Control Engineering Staff August 4, 2008

Chicago, IL – Five hundred and forty-one mass layoff events in the U.S. manufacturing sector in June 2008 resulted in 76,514 initial claims for unemployment insurance, according to a recent report from the U.S. Department of Labor, Bureau of Labor Statistics. In spite of that, the North American midsized manufacturing sector seems “cautiously optimistic,” according to Prime Advantage , a buying consortium for midsized industrial manufacturers.

Prime Advantage conducted its second Group Outlook Survey, which revealed top economic concerns for the second half of 2008. Survey data was collected from 72 senior-level representatives of industrial manufacturing companies, including business owners, vice presidents of procurement, and purchasing directors.

Raw material and energy costs continue to top the list of cost pressure concerns.

“The Prime Advantage Group Outlook Survey has served as a reliable indicator by identifying key economic factors of influence for mid-sized manufacturers throughout North America,” says Louise O’Sullivan, president and founder of Prime Advantage. “Prime Advantage members’ perceived concerns in January were on the mark.”

The first survey, conducted in January 2008, asked members to predict expected cost pressures for the year. At that point, group members were apprehensive about rising material (43%) and energy (17.5%) costs. The new study shows 93% agreeing that material costs are an economic concern for the rest of this year, and 67% agreeing that energy costs are close behind.

“Other indicators, such as the Institute for Supply Management’s June 2008 Manufacturing ISM Report On Business reflect that rising commodity prices, combined with a fluctuating Purchasing Managers Index, are putting great pressure on U.S. manufacturers,” says O’Sullivan. “The bottom line is that pricing pressures for raw materials and commodities will likely continue to be an obstacle to success for many North American manufacturers.”

Inflation has become the third highest concern, with 39% in agreement (up from 31% in January). Logistics and supply chain costs followed with 38% agreeing, up from 21.6%. Healthcare (18%), foreign competition (12%), overhead (11%), and labor (8%) were other concerns.

Fifty-one percent of respondents shifted the top sourcing priority to “identifying reliable and cost efficient sources for raw materials”rather than “improving efficiency measurements.” Contrary to the first survey, a higher percentage of respondents expect capital spending to decrease or stay the same as the first half of 2008, and 39% expect capital spending to decrease in the next six months; 42% expect it to remain unchanged. Previously, members predicted no change from 2007 (52%), or an increase (36%) from 2007 in capital spending.

The survey showed confidence for employment opportunities in the second half. While 17% expect job cuts within the next six months, another 17% expect job growth, and 66% expect to make no changes and keep their current employee base the same.

“These results show that U.S. manufacturers are cautiously optimistic about the rest of the year, in spite of current economic concerns,” said O’Sullivan.

Related information can be found in the Manufacturing ISM Report On Business, published monthly by the Institute for Supply Management.

Results are also available from Prime Advantage’s January 2008 survey .

Also see: Red indexes; white hot for some automation; blue electroindustry outlook .

–  Control Engineering News Desk Register here and scroll down to select your choice of eNewsletters free .