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March 31, 2003 OIL PRICES COULD BE A KEY FACTOR IN RECOVERY,ACCORDING TO CBIA QUATERLY ECONOMIC SURVEY HARTFORD, Conn. - Oil prices, which have jumped since the invasion of Iraq but are still lower than recent highs, could be a key factor in the future of Connecticut's already fragile economy, according to the Connecticut Business & Industry Association's quarterly economic survey, results of which were released today. Overall, respondents said they expect economic conditions to be weak with very slow growth over the next quarter. Some economic factors are actually stronger than shown in the previous quarter's survey, but concerns for the health of the state and national economies are increasing. "Recovery is likely to remain weak for the next three months," said Peter M. Gioia, economist, CBIA. "However, geopolitical conditions, including the price of oil, could be a significant factor in the direction of the economy. Respondents expect performance to improve noticeably if oil prices decline substantially, but they expect conditions to worsen considerably if oil prices increase substantially." According to the survey, if oil prices reach levels hit in the 1991 Gulf War, 57 percent of those responding said their companies would see real losses in production and sales. Late last week, the price of oil futures rose above $30 a barrel, a jump of 13 percent in five business days but still well below the Gulf War high, which adjusted for inflation was $57.40. "Despite the recent run-up, we've seen oil drop from prices of around $40 a barrel earlier in March," Gioia said. "Some market watchers have predicted that oil could fall to as low as $20 a barrel after hostilities end, and if that happens the state would see a real boost." In fact, 45 percent of respondents saw sales or production gains coming out of lower oil prices, while fewer than 4 percent saw any negative impact from the lower prices and 52 percent predicted no change in sales or production from lower prices. The number of respondents who said they expected production and sales to remain stable or increase actually rose slightly in the latest survey. Some 48 percent said they expected production and sales to remain stable, compared to about 44 percent in the previous quarter, while 27.2 percent projected production and sales to increase somewhat, compared to 24.4 percent in the previous quarter. Respondents also projected work forces to remain stable or even increase slightly. More than 67 percent said they expect their head counts to remain stable in the upcoming quarter, compared to just over 63 percent in the previous quarter, while the number of respondents predicting more hiring grew and the number of those predicting work force reductions shrank. However, the numbers of those predicting the state and national economies to worsen grew. In all, more than half said they expect state conditions to worsen somewhat, compared to 47.3 percent in the previous survey, while 11.8 percent project the national economy to worsen significantly, compared to 7.3 percent in the previous survey. And 48 percent said they expect the national economy to worsen somewhat, compared to 33.5 percent in the previous survey, while the number of those projecting significant worsening of the national economy rose to 4.5 percent from 1.5 percent in the previous quarter. "The data from the latest quarterly survey indicate that businesses are expecting some slight growth in the upcoming quarter even though they have less confidence in the economy," Gioia said. "This tells me that economic conditions are a little better than people might think, though, obviously, the situation in the Middle East could change things significantly." Methodology In March 2003, 2,000 surveys were mailed or e-mailed to executives around the state. A total of 319 surveys were returned, for a return rate of 16 percent and a +/-5.6 percent margin of error. The overwhelming bulk of responses were received just prior to actual hostilities in Iraq. CBIA is the state's largest business organization with over 10,000 members. Media wishing to attend the event should contact Nancy Andrews, CBIA media relations manager, at 860-244-1957 or andrewsn@cbia.com. 350 Church
Street · Hartford, CT 06103-1126 · cbia.com/newsroom
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