Boosted activity in the manufacturing sector
Following a detailed study of industry-level data, economist William Melick concluded: “The roughly two-thirds decline in the price of natural gas in the United States relative to the price of natural gas in Europe (over the last nine years) has boosted activity in the manufacturing sector as a whole by perhaps two to three percent.”
“For the handful of industries that are heavy users of natural gas, the estimated effects are much larger, on the order of a 30 percent or larger increase in activity,” he explained in a working paper published by the Federal Reserve (“The Energy Boom and Manufacturing in the United States,” June 2014).
Employing data for energy consumption and use of natural gas as a feedstock in 79 manufacturing sectors, Melick found the reduction in gas prices caused investment to increase by up to 10 percent while output and employment rose by two to three percent.
The gains are “not trivial but by no means overwhelming,” Melick observed. Given that manufacturing accounts for only around 12.5 percent of U.S. gross domestic product, the impact has boosted GDP by 0.2 or 0.3 percentage points. It hardly qualifies as the manufacturing renaissance heralded by some commentators.
But for a small number of energy-intensive industries - including makers of fertilisers, alkalies, chlorine, carbon black and flat glass - the impact has been profound. The drop in relative prices “is associated with at least a tripling of capital expenditure, an almost 40 percent increase in production and a 30 percent increase in employment.”