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The Global Manufacturer
Energy Change You Can't Believe In

Energy Change You Can't Believe In

The boom in domestic production of oil and natural gas has analysts and politicians talking about energy independence, or at least greatly reduced dependence, for the United States in the next few years.

With all that new production, industrial manufacturers, who consume about 25% of the energy used in the U.S., should be licking their chops at the prospect of lower prices and improved competitiveness.

But when asked if they anticipate lower overall energy costs over the next 2-3 years, 54% of manufacturers surveyed by PwC in its latest Manufacturing Barometer disagreed. Moreover, 81% said they aren’t planning for lower overall energy costs in the next 12-18 months.

Manufacturers do show more optimism in a slightly longer timeframe, with 42% saying they are planning for lower energy costs in the next 2-3 years.

Manufacturers told PwC they do expect a positive impact from lower energy prices. Some 62% said it would benefit the U.S. economy and 63% said it would boost consumer confidence.

But manufacturers appear out of synch with some projections that lower energy prices will have a huge impact on the job market. Boston Consulting Group, for example, has projected that lower energy prices and rising labor costs in China could combine to produce 2.5 million to 5 million jobs by the end of the decade.

Yet in PwC’s Manufacturing Barometer, only 39% of manufacturers said lower energy costs would lead to new hiring in the U.S. and just 33% said it would contribute to their company’s revenue.

What would manufacturers do if they did find themselves with an “energy premium” in the near future? Nearly 3 out of 4 (74%) said they let the reduced costs drop to the bottom line and increase profits. Only 32% said they would add to their workforce and just 18% said they would use the extra money for increased capital spending.

Bobby Bono, PwC’s U.S. industrial manufacturing leader, said the spending findings were “in line with the conservative stance to long-term capital outlays we are seeing across the industry.” He added: “While U.S. industrial manufacturers are investing in operational improvements and product development, they also remain focused on guarding against risk, maintaining strong balance sheets and supporting profit margins.”

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