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Study: Oil Price Hikes Barrier to Growth

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June 6, 2005--Rising oil prices aren't just a problem at the pump; for some companies, they're drilling into the bottom line, according to PricewaterhouseCooper's Q1 2005 Manufacturing Barometer survey.

The survey published Wednesday said that 47% of large industrial manufacturers anticipated rising oil prices to be a barrier to growth over the next twelve months, mostly due to increases expected to play out on raw material, energy and transport costs. Of the large industrial manufacturers who described themselves as oil-vulnerable in the survey, such as those in the chemical or industrial machinery sectors, 71% experienced rising costs in the quarter, and 59% passed on some of the costs by raising their prices. Of those that did not describe themselves as oil-vulnerable, just 44% experienced rising costs and 39% passed the costs on to customers.

Smaller manufacturers are expected to face similar cost increases, but may be less able to pass these costs on to consumers by raising prices, according to Keith Holman, assistant chief counsel at the Small Business Administration Office of Advocacy. Although the SBA has not yet completed specific research on the impact of oil prices on the small business market environment, Holman noted that "unless small businesses have a specific niche product, it is harder for them to raise prices," because they may lack the brand loyalty or thicker wallets that help larger firms wait out fluctuating external costs.

A similar report released by the National Federation of Independent Businesses in June 2004 found that small business owners ranked rising energy costs fourth out of 75 potential problems. Bruce Phillips, senior economist at the NFIB, said that he expects oil prices to be even more of a priority now.

However, not all small business owners see the strain of energy prices on their businesses. Jack Stack, founder and CEO of Springfield Remanufacturing Corporation, a $43 million company based in St. Louis, Mo., said that despite recent increases in oil prices, his firm "was able to quickly stabilize costs and roll back some prices."

"Small manufacturers are lean to a point that when ancillary costs increase, it may affect us for a while, but we quickly find the best alternatives and get the price under control," said Stack.

Last updated: Jun 3, 2005




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