CLEVELAND: The word “offshoring” is sure to rankle anyone who lost his or her job, particularly in manufacturing, to someplace outside the United States.
But the burgeoning U.S. shale gas and oil industry might help popularize a relatively new expression, “reshoring,” as some of those jobs start to return — at least in part as companies take advantage of a glut of low-cost shale gas, economists and others said this week.
Hydraulic fracturing, or fracking, will drive a lot of additional manufacturing, said William Strauss, senor economist and economic advisor at the Federal Reserve Bank of Chicago. He was among the speakers Thursday at a conference on manufacturing and industry at the Federal Reserve Bank of Cleveland.
“I think we have become one of the lowest-cost energy suppliers in the world,” Strauss said.
Strauss and other speakers in the program, Making It in America: Manufacturing Matters, sponsored by the Washington, D.C.-based National Association for Business Economics, either mentioned or focused on fracking as a bright spot for the U.S. economy.
While manufacturing has been leading the economy upward in the aftermath of the Great Recession, don’t expect manufacturers to suddenly add millions of jobs. It will still take years to recover from the millions of job losses in the Great Recession of 2007-09, speakers said. The economy is growing but at a very slow pace, speakers said.
“We are, in fact, creating jobs,” Strauss said.
But only 21 percent of workers lost in the Great Recession have been brought back, he said.
At the same time, 75 percent of the work that was being done before the recession is back, meaning that companies are finding ways to do more with fewer people, Strauss said.
“Productivity is dominating,” he said.
Strauss likened what is happening with manufacturing to the transformation of U.S. agriculture. In 1870, it took 52 percent of the U.S. work force to feed the nation, he said. It now takes 1.6 percent of the work force to feed the nation, he said.
“Isn’t that terrible?” Strauss asked. That same kind of productivity improvement is happening with manufacturing, he said. As a result, the nation needs to prepare its work force for jobs that will still be around, he said.
The decline in manufacturing employment is happening all around the world and includes China, Strauss said. “This is not just a U.S. phenomenon.”
Cleveland Federal Reserve President Sandra Pianalto said she is hearing anecdotally that global manufacturers in the Cleveland Fed’s district, including steel producers, note the United States is becoming more economically attractive and competitive.
“One of the drivers of that is energy costs,” she said. Low-cost fracked natural gas is providing a more competitive manufacturing environment, Pianalto said.
The energy industry is just starting to tap the natural gas and so-called wet gases of Ohio’s Utica shale. The energy industry has been fracking the Marcellus shale in Pennsylvania, New York and parts of Ohio for natural gas; the fracking in the region and other parts of the nation has driven down natural gas prices to historically low levels.
Shale gas and oil are not a short-term phenomenon, said Marianne Kah, chief economist for energy giant Conoco- Phillips.
Major shift
The new shale-fracking technology has allowed the United States to surpass Russia as the world’s largest natural gas producer, she said. The United States basically went from having no shale energy in the early 2000s to producing a glut now, she said.
U.S. shale energy also improves the nation’s security and offers environmental benefits, Kah said. Shale is all over the United States, she said.
“This is a big deal,” she said. People need to keep in mind that the industry is just learning how to get liquids out of the shale as well, she said.
“The shale gas story is huge. We really do believe that this is game changing, not just for the energy sector, not just for energy policy, but for manufacturing, specifically domestic manufacturing,” said Robert McCutcheon, managing partner of the Pittsburgh office of PriceWaterhouseCooper.
The impact of an abundance of low-cost energy goes beyond the energy industry, he said. The impact remains true even if the amount of shale gas and oil ends up being on the low end of industry and government projections, he said. Shale energy must be extracted in an environmentally safe way, he said.
McCutcheon co-authored a report last December that forecast as many as 1 million manufacturing jobs could be created by 2025 through low-cost shale energy.
The chemicals industry, for instance, uses natural gas as a feedstock and not just for energy, he said. The low cost of the fracked gas makes it more attractive for the industry to build plants that turn gas into the materials it needs, he said.
Steel mills, for example, will be able to use new technologies instead of more energy-intensive blast furnaces and electric arc furnaces, he said.
The shale energy boom is one element of a larger story about the resurgence of domestic manufacturing, he said.
“This is a good story to tell,” McCutcheon said. “As manufacturers, as industrial product companies, you have a significant stake in the shale gas story.”
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
