Rising oil prices are significantly hampering the growth of U.S. industrial manufacturers, according to PricewaterhouseCoopers' most recent manufacturing barometer. Of the executives surveyed, 47% cite rising energy prices as a potential barrier to growth in the next 12 months. A majority of these manufacturers (59%) are passing along these price increases, yet 41% report shrinking gross margins during the most recent quarter. "Higher oil prices affect industrial manufacturers on multiple fronts," says Jorge Milo, U.S. leader of PricewaterhouseCoopers' industrial manufacturing practice. "Raw material prices go up, energy costs increase to operate their facilities, and distribution costs rise to transport their products to their customers." Of the companies surveyed, 71% that describe themselves as oil-vulnerable reported rising costs in the prior quarter, compared with 44% of those who did not describe themselves as oil-vulnerable. Of the oil-vulnerable companies, 59% raised their prices, versus 39% of the non-vulnerable companies. In addition, 41% of oil-vulnerable companies saw their margins decrease in comparison with 23% of the non-vulnerable companies. Overall, large industrial manufacturers have lowered their revenue growth expectations to 6.5% for the next 12 months, from their prior estimate of 7.8%. "Manufacturers must decide how much, if any, of these rising costs to pass onto their customers," says Milo. "Many are attempting to do so, but tightening margins indicate that end markets will only absorb so much. It's a delicate balancing act."
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