EID recently highlighted how an Ohio steel mill is again producing and shipping steel down the Ohio River after sitting dormant for eight long years. The positive trend is not just occurring in Ohio, but across the United States, as a new Institute for Supply Management (ISM) report shows that U.S. manufacturing activity has risen to its highest levels since May 2004. As CNBC reported this week,
“U.S. factory activity surged to a more than 13-year high in September amid strong gains in new orders and raw material prices, pointing to underlying strength in the economy even as Hurricanes Harvey and Irma are expected to dent growth in the third quarter.”
There are certainly many reasons why this growth is occurring. But one important factor consistently absent from headlines this week is the connection between the surge in manufacturing and near record-breaking production of oil and natural gas in the United States.
Despite the media’s disregard of this connection, the correlation is clearly illustrated by the following EID chart and has been recognized by numerous recent reports.
Because natural gas is a major manufacturing feedstock, the cheap and abundant supplies made possible by fracking have been credited by several experts as a major reason for the current manufacturing revival taking place in the U.S.
In fact, a recent study by researchers from the London School of Economics (LSE) concluded that for every two jobs directly created by fracking, at least one more is created in the manufacturing sector.
The White House National Economic Council also recently released a report entitled “Revitalizing American Manufacturing” which finds that since early 2010, U.S. manufacturing has added more than 800,000 direct jobs. The White House linked this directly to shale production, as the report stated,
“The surge in American natural gas production has lowered energy costs for manufacturers and driven job growth.”
The ISM report also notes that, “Energy sector (oil and gas) continues to be strong” and “(the) price of oil appears to be beginning to stabilize.”
It’s no coincidence that this positive manufacturing trend has occurred at the same time shale development has enabled the United States to become the largest producer of oil and natural gas in the world. After all, the industrial sector happens to be a major consumer of oil and gas. Manufacturing accounts for one-third of industrial-use energy consumed in the United States, and energy is one of the largest costs of doing business. To keep these costs low, producing domestic oil and natural gas is key, and the United States happens to be the top oil and gas producer in the world five years running.
As a result, manufacturing rich regions like Ohio and Pennsylvania have enjoyed the lowest natural gas prices in the domestic world, which results in major savings for manufacturers.
Notably, the U.S. Energy Information Agency (EIA) reported in 2013 that the increased supply of natural gas was indeed a major benefit to manufacturers.
“Natural gas has been an important exception to the trend of rising prices for energy sources used by manufacturers. Production of natural gas in the United States increased rapidly beginning in 2007 as a result of resources found in shale formations. That increase in supply has in turn lowered the price of natural gas to manufacturers as well as other consumers.”
Manufacturing leaders have noted fracking’s role in helping their industry thrive as well. Pennsylvania Manufacturers Association president David Taylor recently said,
“(Natural gas) is the best opportunity that Pennsylvania has to have competitiveness and to expand and develop manufacturing here as opposed to somewhere else. To be located close to the source of those inputs makes your company more cost competitive and therefore more profitable.”
And the same year EIA put out its report on manufacturing consumption trends, the National Assocation of Manufacturers (NAM) produced a report that found:
- The combined upstream, midstream and downstream unconventional oil and gas production process, and the chemical industry benefiting from it, will support more than 460,000 combined manufacturing jobs by 2020, rising to nearly 515,000 by 2025.
- The unconventional oil and gas value chain added $284 billion in contributions to GDP in 2012. This number is projected to increase to $468 billion by 2020 and $533 billion by 2025.
- Driven by a rise in domestic production and manufacturing that will displace imports, as well as a favorable export position for these industries, the trade deficit will be reduced by more than $164 billion by 2020.
Four years later, these predictions are becoming a reality, as this new ISM report clearly shows. Yet, not one headline covering the merits of the manfuacturing surge (that we could find) mentioned anything about how shale development has contributed to this major milestone. But the fact remains that fracking is a major reason for this exciting news in the manufacturing sector — and all indicators support the conclusion that there’s a lot more positive trends still to come.
As EID has said before: as goes shale gas development, so goes manufacturing. And as U.S. manufacturing goes, so goes America — which means we could very well be seeing a lot more “Made in America” labels in the years to come.