A combination of new technologies, low natural-gas prices, and the promise of a third industrial revolution are fueling hopes that the U.S. economy may emerge stronger than ever from the worst recession since the 1930s. Among the evidence that this revival already has begun are steady increases in the monthly Purchasing Managers Index (PMI), which has been improving month to month since late 2011. Prior to a slight dip, the manufacturing sector recorded its 33rd consecutive monthly expansion in April 2012, and the U.S. economy grew for the 35th month in a row.
Much of the recent good news for manufacturing, largely overlooked amid worries about other economic indicators and fallout from the ongoing sovereign debt crisis in Europe, can be traced to new technologies that are making it possible to drill oil and natural gas from shale rock formations. Petroleum geologists used to write off shale as a resource because there was no way to gain access to the oil and natural gas trapped in the formations. Now, technologies such as horizontal drilling and hydraulic fracturing (or fracking) have made it possible to extract oil and gas from these resources. This has caused a glut in natural gas supplies, which in turn has reduced prices to their lowest levels in 10 years.
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These developments are having a snowball effect in the larger economy. Natural gas is used to generate much of the nation’s electricity, so the decline in natural gas prices is trimming consumer bills for electricity as well as for heating. And the boom in oil and gas exploration is creating jobs not only for drilling companies but also for energy supply companies, the steel and plastics industries (heavy users of oil and natural gas), the paper industry, and the broader services industry. With more oil being produced in the U.S., the country also is less dependent on foreign sources.
Other new technologies have reduced labor costs for U.S. manufacturers in the transport, computer, fabricated metals, and machinery industries, all of which had outsourced much of their work to China. Now, with labor expenses dropping as a percentage of overall costs, U.S. companies are bringing jobs back home, gradually reversing the trend that had moved so many manufacturing facilities overseas. Being able to locate manufacturing plants near U.S.-based product designers also helps companies cater to increasing consumer demand for customization.
A U.S. manufacturing boom will have a significant impact on economic recovery. During the past five years, the boost in energy production alone has created 158,500 new jobs, and according to a recent Boston Consulting Group estimate, U.S. manufacturing output could be increasing at an annual rate of $22 billion to $55 billion by 2020.
Digitalization of manufacturing, lower labor costs, and cheaper access to clean energy could combine to create what some are calling a third industrial revolution. The first two, in the 19th and early 20th centuries, culminated in mass-production technologies that have remained the model for manufacturing ever since. Now, however, emerging technologies, such as 3D printing, are turning that model on its head. Today, rather than needing to raise enormous amounts of capital to build huge factories, entrepreneurs can use relatively inexpensive web-based services to cater to a variety of consumer demands. And whereas the first two industrial revolutions created individual wealth and industry titans, the third should benefit a much broader spectrum of society.
New technologies will help create jobs in the private sector while they also help revitalize industries that suffered during what has been dubbed the Great Recession. For example, the new oil- and gas-drilling capabilities are drawing workers to areas where housing is in short supply. That, in turn, is a boon for the prefabricated housing industry, and it’s enabling companies in that and other industries to rehire workers they were forced to let go during the recession.
Digital technology is beginning to blur the lines between the manufacturing and services sectors. And as it continues to draw jobs back to the United States, it could provide enormous economic stimulus, stabilizing the recovery. As independent economist Fritz Meyer notes, even in the face of competition from China and other emerging economic powers, the United States has remained the world’s largest manufacturer. This growing resurgence will only increase U.S. dominance and help sustain economic expansion despite temporary disappointments.