A report from IHS Consulting claims that unconventional oil and gas technologies, including fracking, will boost disposable income in the U.S. by more than $2,700 per household, bolster trade, and cut the trade deficit by one-third by 2020.
U.S. oil production has jumped 50 percent since 2008, and natural gas production has risen by 33 percent since 2005. This surge contributed to $1,200 average increase in disposable income per household last year, the report states. The increase was driven by a combination of falling utility prices and an overall reduction in the cost of goods and services throughout the economy.
Moreover, IHS attributes an increase of 500,000 manufacturing jobs and a 4.8 percent increase in industrial production since the trough of the recession in 2009 to growth in oil and gas sectors. It also claims that energy-intensive industries like chemicals, iron, aluminum, cement, and the food industry will boost investments and expand U.S. operations in direct response to falling energy prices. This will result in these subsectors of the economy outperforming the overall U.S. industrial economy.
The report expects lower natural gas prices by 2015 and a 2.8 percent boost in industrial production. By 2025, industrial production is expected to rise by 3.9 percent. This will cause a 3.7 percent surge in manufacturing jobs throughout all sectors, or 460,000 new jobs by 2020, a figure that will rise to 4.2 percent or 515,000 jobs by 2025.
The report estimates that by 2025, total contributions to GDP will approach $533 billion, add $1.4 billion in government revenue, and increase net exports by $180 billion.
Auto Sales Beat Expectations in August
August U.S. auto sales were higher than predicted, helping buoy the general economy, according to numbers released last week.
Auto companies sold 1.5 million vehicles last month, 17 percent more than the sluggish totals for July. The year-to-date, seasonally adjusted annual industry sales rate rose to 16.09 million, a post-recession high; the rate at this time last year was 14.49 million.
Industry experts attributed the gains to lower lease payments.
“Attractive low lease payments have proven very effective at getting new-car buyers back into the market,” Jessica Caldwell, a senior analyst for Edmunds.com, told The New York Times.
The Federal Reserve noted that the high auto sales for August helped the overall U.S. economic figures, saying that they helped direct the economy on a “modest to moderate” growth path, according to Reuters. Commercial auto sales in the U.S. account for about 70 percent of economic activity.
Strong auto demand from China is set to continue these strong auto sales, according to a release from credit analyst Moody’s. The report foresaw a 4.8 percent rise in the world car market in 2014. However, Moody’s saw auto sales in the U.S. remaining positive only if a U.S. economic growth does not slow.
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Fed: Modest Economic and Manufacturing Growth
The latest Federal Reserve Beige Book survey released last week indicates that the economy grew at a moderate pace between early July and late August, while manufacturing activity improved modestly.
The Fed survey is derived from anecdotal reports from its 12 districts, all of which reported modest to moderate growth, as consumer spending picked up from tourism and travel this summer. More Americans also purchased cars and homes, and back-to-school sales also contributed to the boost in economic activity.
Manufacturing activity and hiring in the sector improved modestly, and several districts, including Philadelphia, Richmond, Atlanta, Chicago, Kansas City, and San Francisco reported strong demand for inputs related to autos, housing, and infrastructure. Chicago also cited the auto industry as a strong area of strength in manufacturing, while Cleveland reported a decline in auto production activity. San Francisco and Kansas City reported that spending cuts lead to a production decline in military plants.
Across most industries and occupations, hiring was steady or increased in some districts in August, though U.S. employers hired less than expected. In manufacturing, several areas, including Boston, Richmond and Minneapolis reported shortages of types of skilled manufacturing workers. Meanwhile, St. Louis noted reported a surge in employment at manufacturing firms connected to the auto and home construction industries.
This information will be a key part of the Federal Open Market Committee’s decision on Sept. 17 and 18 of whether or not to taper the U.S. central bank’s stimulus program, equivalent to $85 billion in monthly bank buying to hold interest rates down.
U.S. Trade Deficit with China, Europe Grows
The overall U.S. trade deficit grew 13.3 percent to $39.1 billion in July, according to a report from the U.S. Commerce Department. In particular, the trade gap with China widened to $30 billion, prompting new calls for action against the nation’s purported currency manipulation practices.
The U.S. exported $189.4 billion in goods and services in July, just shy of June’s all-time record high of $190.5 billion. But this was offset by a spike in imports, particularly for foreign-made auto parts, which were the highest on record. Rising oil prices and a jump in oil import quantities also helped widen the deficit.
Weak demand from Europe curbed export growth. In July, exports to the European Union fell 7.4 percent, also resulting in a record trade deficit. Exports to the EU in the first seven months of the year were down 4.4 percent compared to the same period in 2012.
But there are signs that this will change soon. The Institute for Supply Management said on Tuesday its gauge of new manufacturing export orders rebounded in August after slipping in July.
Exports of goods and services over the last twelve months totaled $2.2 trillion, which is 41.7 percent above the level of exports in 2009. Over the last twelve months, exports have been growing at an annualized rate of 10.2 percent when compared to 2009.
Over the past twelve months, major export markets with the largest annualized increase in U.S. goods purchases, when compared to 2009, were Panama (28.6 percent), Russia (22.1 percent), United Arab Emirates (21.9 percent), Peru (21.3 percent), Chile (20.9 percent), Colombia (19.7 percent), Hong Kong (19.5 percent), Argentina (18.3 percent), Ecuador (18.0 percent), and South Africa (17.7 percent).
Jobless Claims Down as Workforce Participation Slumps
Another drop in employment claims created excitement among economists and businesses, only to be tempered by weak hiring and a decrease in labor participation. The mixed reports raised questions as to whether the Fed would reign in its stimulus program as early as some expect.
The number of Americans seeking unemployment benefits dropped 9,000 in the week ended Aug. 31 to a seasonally adjusted 323,000, according to recent data from the U.S. Labor Department.
The four-week moving average for jobless claims fell by 3,000 to 328,500, the lowest since October 2007. This is fourth-consecutive week of record lows since the recession.
But a separate report from the Labor Department announced that hiring in August was less than expected. Non-farm payrolls rose by 169,000. Manufacturing jobs made up 14,000 of those, one of the few positives in the report. The report also shows the unemployment rate fell to 7.3 percent. Still, the pace of hiring is a mirror of last year, adding to fears that third-quarter growth for the U.S. will slow. A poll by Reuters had predicted job gains of 180,000 and for the unemployment rate to hold steady.
The Labor Department also revised hiring estimates downward from the previous two months by 74,000. New figures show that only 102,000 jobs were added in July and 172,000 in June, compared to the originally reported 162,000 and 188,000 respectively.
But one important factor affecting the unemployment rate cannot be overlooked: Many Americans have dropped out of the job market. The Bureau of Labor Statistics confirmed that the size of the workforce fell by 300,000, dropping the participation rate by 0.2 percent to 63.2 percent — the lowest since August 1978.
Still, the New York Times reports that fears of inflation could push the Fed to announce the tapering its bond-buying program after its meeting on Sept. 17 and 18. “There’s just barely enough in [the Labor Department] report and in other forward-looking indicators we’ve seen to give Fed governors the confidence they need on the 18th to taper,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told the Times.
This article was originally published on ThomasNet News Industry Market Trends and is reprinted in its entirety with permission from Thomas Industrial Network. For more stories like this please visit Industry Market Trends.