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back to index backAMERItalk January,  2006


NAM 2006 Economic Forecast Concludes High Energy Prices Are Curbing Expansion

Chief Economist Says Soaring Natural Gas Prices Pose Critical Challenge to Manufacturing

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 just 2.6 percent - the slowest quarterly growth rate since the first quarter of 2003, according to the National Association of Manufacturing's economic forecast for 2006.

"Though the impact of heating bills will abate in the spring, the impact of historically high natural gas prices will continue to impact manufacturing," said NAM Chief Economist David Huether. "There is a world price for oil, but not for natural gas. 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 said the interruption of energy supplies caused by last year's hurricanes had served primarily to exacerbate the nation's energy vulnerability. Four months after Hurricane Katrina made landfall, 27 percent of oil production and 20 percent of natural gas production in the gulf still remain shut in. "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."

"However, the outlook is not without risk," Huether said. "When hurricane season returns, we face the prospect of future interruptions of energy supplies. Given our economy's vulnerability so graphically demonstrated last year, it is imperative that we take action now to expand domestic energy supplies. Failure to act will leave us even more exposed when the next natural disaster strikes." The NAM Economic Forecast for 2006 can be accessed at www.nam.org/economicoutlook2006.

The National Association of Manufacturers is the nation's largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states. Headquartered in Washington, D.C., the NAM has 10 additional offices across the country. Visit the NAM's award-winning web site at www.nam.org for more information about manufacturing and the economy.

Source: National Association of Manufacturers - GAI


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