Gas prices: Bad news for consumers, good news for U.S. manufacturing?

The Top Story by Chris Graham
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Five years ago, OK, as recently as a couple of months ago, we were all convinced that American manufacturing was a thing of the past.

We can’t compete with Mexico, with China, where labor costs are lower, where goods can be shipped out at much lower unit prices that we can do here in our own backyard. That was the conventional wisdom.

It all seems so pre-early July 2008 when you look at it now, doesn’t it?

“We see a connection between gasoline prices and weakness in the dollar, and as it turns out, both of those weaknesses are actually strengths for selling products here at home and for domestic manufacturers. So I see these things as being related. To my way of thinking, a weaker dollar and higher gas prices are pluses for U.S. manufacturers. And I think they will lead us to more domestic production,” said Peter Rodriguez, an economist who specializes in international commerce and a professor at the Darden School of Business at the University of Virginia.

Gas prices and the weak dollar are coupling with changes in the economies particularly in Asia, where labor costs are rising as standards of living are pushing the growth in internal consumer markets, to effect what some are referring to as deglobalization. The cost of doing business in the global marketplace has changed maybe forever, or at least until we come up with another way to tranport goods across the globe on the cheap like at the height of the free-flowing oil era.

This, of course, isn’t 100 percent good news, for several reasons, chief among them, for manufacturers, anyway, that higher fuel costs are issues that have to be dealt with even in a domestic-market setting. “And we are hearing from a variety of companies, from the existing industry base here, that there is concern about fuel costs, energy costs in general, and as a matter of fact, our yearly board meeting, the presentation is on alternative energy. So there is an overriding interest in fuel prices and energy in general as far as the manufacturing community is concerned, no question about that,” said Robin Sullenberger, the executive director of the Shenandoah Valley Partnership, which manages economic-development activities in a seven-county, five-city region in the Central Shenandoah Valley.

Sullenberger reads the list of announcements of Valley-based manufacturers that have decided on expansions here in the Valley as being based at least in part on “the energy factor.” “The bigger factor for us seems to continue to be the productivity of the region. The output here for most of our manufacturing facilities is higher for our companies than other places where they do business,” Sullenberger said. “Labor costs are basically the big selling point for the offshoring philosophy. We overcome those in a number of ways, and one of those certainly is becoming more geared to fuel costs.”

So there is some silver lining in the clouds of high gas prices. But we can’t ignore the gloom and doom that those clouds can still bring. “The other side of the coin is that we’re confronting higher transportation costs, and I think that’s introduced a level of uncertainty into the financial-planning process that makes companies hesitate to commit too quickly to an expansion or a relocation,” said Meghan Williamson, the economic-development director in Waynesboro, who points out that many companies are still showing themselves to have “a certain hesitancy to pull the trigger on projects, so to speak,” for understandable reasons.

“What we’re seeing right now is companies both on the industrial side and on the retail side taking a lot of time right now to explore possibilities, analyze projects, do some of the groundwork and the study, even if they’re not forging ahead immediately with a project,” said Williamson, who notes that it is incumbent upon people in the economic-development field to be ready and able to pounce when the time is right.

“This is a good opportunity for us to be doing the right kind of planning and marketing and making those contacts so when we do have more certainty and we head on our upswing, both we and our prospects are ready for it,” Williamson said.

Businesses, industries and regions that can prove themselves adept at adapting will be the ones to benefit down the road. “It’s almost like a species. A good economy is an adaptive economy. When the circumstances change, your economy has to change, and the good ones change quickly,” Rodriguez said.

 

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