Cost of Oil, Steel And Other Commodities Concern EBCI Survey Respondents

Sept. 10, 2004
Confidence in current business conditions affecting the electrical industry eroded some in August, with concerns about the cost of oil, steel and other commodities causing electrical manufacturers uneasiness, according to a monthly survey of National Electrical Manufacturers Association (NEMA) members.

Confidence in current business conditions affecting the electrical industry eroded some in August, with concerns about the cost of oil, steel and other commodities causing electrical manufacturers uneasiness, according to a monthly survey of National Electrical Manufacturers Association (NEMA) members.

According to the August 2004 Electroindustry Business Confidence Index (EBCI), published by NEMA, Washington, D.C., some respondents reported strong current conditions affecting their segment of the electrical industry, but many others took a more measured stance, waiting for the recovery to pick up steam in general, continuing to anticipate improvement in certain markets such as utility and commercial and industrial, or looking for relief through legislative action regarding energy policy.

“The recent downturn in the stock market coupled with the lack of jobs creation and the high cost of oil plus the upcoming presidential election has created some doubt on the sustainability of current spending in our market space (utility),” said one electrical manufacturer. “If interest rates continue upward, some dampening in spending will take place. It is also interesting to note that we are now at the one year anniversary of the 8/14 blackout and have made zero progress on energy legislation that will mitigate against future occurrences.

“Business is better, but not robust,” added another electrical manufacturer. “I have serious concerns about steel price escalation.”

With the exception of Latin America, which expanded by six points to 67.6, confidence in current business conditions eroded to varying degrees in August. The North America index continued its string of weaker numbers for the fourth consecutive month as it receded by five points to 56.9 in August. The current indexes for both Europe and Asia/Pacific reached precisely 50 points, the dividing line between expansion and contraction in the electrical manufacturing sector. The Asia/Pacific index contracted by about 11 points, but Europe index shrunk by more than 18 points between July and August.

Confidence in business conditions six months out has contracted in all four regional indexes. Most of the reduced breadth of confidence is relatively minor with the North America, Latin America and Europe indexes all receding by less than five points to, respectively, 71.7, 68.8, and 57.1 index points. The most dramatic change from July’s report is in the Asia/Pacific region, which slipped nearly 11 points to 53.1 in August.

Respondents to the future conditions index appeared hopeful about the economy in six months, citing the resolution of the U.S. presidential elections, a resolution in the Federal Reserve’s interest rate strategy, and a recovery in the nonresidential construction markets.

“I believe some segments will strengthen in the next six months, while others will weaken somewhat,” said one electrical manufacturer. “The Fed had better slow down the pace of interest rate increases or this fragile recovery will stall.”

Similarly, another electrical manufacturer said, “Barring some type of economic shock (terrorism, oil prices, metals escalation), I would expect business to continue to go upward as the U.S. will have settled on a President and the economy will have digested the Fed’s interest rate hikes.”

One respondent pointed to the danger of what many economists are also suggesting may be the single largest impediment to continued economic recovery, high oil prices.

“High oil prices will put a damper on the entire worldwide economy,” the electrical manufacturer said.