Manufacturing Renaissance?

Members of the Equity Research Department at Fidelity Investments recently stated that following major trends in the US economy can pay off for small business owners. The full interview can be found at www.fidelity.com/viewpoints/manufacturing-revival.

These managers predict that US manufacturing could be staging a comeback citing three broad trends. The first is that the United States is becoming a source of cheap energy. A growing supply of crude oil and natural gas is coming from new drilling techniques such as hydraulic fracturing. The increased supply has led to lower prices.

There have also been changes in the foreign currency arena when China made adjustments in the conversion rate with the US dollar. Although not sufficient to address the imbalance in US-China trade, they have had an ameliorating impact.

Some of these changes directly affect the chemical industry. Chemicals are the building blocks of everyday materials and have an impact on all industries. To make chemicals, companies use natural gas, coal or crude oil. As the prices for these products are reduced, then the cost for all manufacturing activities is also cheaper. US natural gas prices are commonly trading at 25% of their oil counterpart.

Another example is the reduction in the cost of fertilizer. This savings has important implications for the agricultural industry, which comprises a large portion of the American economy. Also affected by these savings is the construction industry. Construction equipment is less expensive to manufacture, enabling construction companies to experience a competitive advantage. Plus, the ratio of energy costs per unit of production will be much higher in the U.S.; our industries are more labor-efficient so a larger ratio of costs goes to energy – if we are experiencing cheaper energy, we have an overall cost savings.

New job creation will be the result of these changes. The multiplier effect within manufacturing employment is enormous. If one person is hired in a manufacturing setting, the ripple effect across the supply chain can be as many as three employees.

One local manufacturer can testify to the impact of these developments. Paula Sullivan is a new entrepreneur, starting her company in late 2011. “Seasodies” manufactures whimsical decorative fish from repurposed plastic soda bottles. Paula has been working with the Rhode Island Small Business Development Center (RISBDC) at Johnson & Wales University where regional director Douglas Jobling has provided assistance, noting that Paula has all the necessary attributes to be a successful entrepreneur. One is her willingness to fully analyze the business operation and to make decisions based on that analysis. Paula did a rather thorough evaluation of the manufacturing process (including going overseas to China). In the end she decided to set up a production line in Woonsocket.  She learned that the Chinese manufacturing model would be too expensive and she would have less quality control than she would here in this country. She hopes to expand soon and plans on hiring more personnel.

More manufacturing means more jobs, here in Rhode Island and across the country.

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