NAM economist: Higher heating bills slow growth

01/13/2006


High winter heating bills have a chilling effect on economic growth, according to the 2006 National Association of Manufacturers’ 2006 economic forecast.

First quarter growth is expected to slow to 2.6%, the lowest rate since the first quarter of 2003. "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 and the Outer Continental Shelf 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."

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% of oil production and 20% of natural gas production in the gulf still remain shut down. "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% 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% in the first quarter, manufacturing production will accelerate to 5.4% 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."

The NAM Economic Forecast for 2006 can be accessed at www.nam.org/economicoutlook2006 .





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