Eroding the Manufacturing Base

There aren’t too many elected officials who don’t pay homage to manufacturing in their remarks, often bemoaning the loss of jobs and plants to locations outside the United States. They are right to be concerned, because manufacturing is the source of most US innovation, jobs in our industry pay about 25 percent more than the average and manufacturing is the largest contributor of all sectors to US economic growth.

Yesterday, in conjunction with AMR Research, we released a new report, The Hidden Backbone of U.S. Manufacturing: Weakening Under Chemical Cost and Supply Pressures, which points to one of the areas of great concern on the horizon to many manufacturers: the rising price and shrinking availability of chemicals. Those that espouse an interest in manufacturing can learn a lot from this report and align their votes with the recommendations in this report.

At the nub of the concern laid out in this report are the outmoded natural gas policies of the federal and state governments. Until a decade ago, natural gas pricing and availability were strong advantages for manufacturing in the United States. Then Congress bumped up the demand for natural gas (by encouraging use by electric utilities instead of coal or nuclear) but refused to do anything to allow for new supplies to come on stream. That has led the United States to have one of the highest prices for natural gas in the world. It’s cheaper in Canada, right across the border.

Much has been written of the use of natural gas as a heating source for many manufacturers. Much has been made of how the chemical industry itself uses chemical for power and for a feedstock to make its chemicals. But little light has been shed, until now, on those manufacturers down the supply chain who rely on all these chemicals. What about them? This reports gives us the answers:

  • 55% of companies overall have significant, direct dependence on chemicals for their production;
  • 73% of food, medicine and other process manufacturing operations depend directly on chemicals;
  • 50% of companies say they cannot replace these materials with any substitutes;
  • 90% of companies overall see chemical costs rising, with 62% calling the increase “substantial;” and
  • 43% see domestic chemical capacity decreasing.
  • The results of these trends are ominous for one of our most competitive and innovative sectors.

    If the federal and state government don’t reform natural gas policy, here’s the only other option from the survey:

  • 25% of companies say they will move, on average, about one third of production offshore.
  • Some of the problems our country faces are difficult to resolve. Here’s one that CAN BE CHANGED through more exploration and drilling, if only authorized by Congress and, in some cases, by state governments. Those who truly want to retain manufacturing in the United States will push and vote for this option.