CLEVELAND (June 1, 12:40 p.m. ET) — The U.S. economy should post modest growth through 2014, even with the country's manufacturing base getting a boost from development of shale gas and related products — including plastics and chemicals.
Plastics and rubber also are among several industries that are on the brink of returning work to North America from Asia. These views were shared by speakers at a manufacturing conference hosted by the National Association for Business Economics, May 31 in Cleveland.
U.S. gross domestic product should grow a little more than 2.5 percent this year, and 3 percent in 2013 and 2014, according to Sandra Pianalto, president and CEO of the Federal Reserve Bank of Cleveland. The Cleveland Fed is one of 12 nationwide, covering a district that includes Ohio, western Pennsylvania and parts of Kentucky and West Virginia.
“My outlook relies on monetary policy being accommodative,” Pianalto said. “Above all, I believe that in uncertain times it's important to keep an open mind and a balanced approach.”
Even with moderate growth, it could take four or five years for the U.S. unemployment rate to fall to 6 percent from its current level of just over 8 percent, added Pianalto, who joined the bank in 1983 and has served as its president since 2003.
A ray of hope is coming from shale gas development, which several speakers said could lead to a renaissance in U.S. manufacturing. ConocoPhillips Co. chief economist Marianne Kah said that the discovery of shale gas and oil in “new reservoir targets” — such as shale source rocks and ultra-tight reservoirs — is “the largest breakthrough since the industry moved [into offshore drilling] in the late 1940s.”
Hydraulic fracturing or “fracking” — one of the methods being used to access new gas and oil supplies — has been done in the U.S. for 60 years, Kah said. But it took a period of high natural gas prices for the technology to be applied on a wider basis. As a result, U.S. natural gas reserves have increased from 1.75 trillion cubic feet in 2007 to 2.25 trillion cubic feet in 2010 — a three-year increase of almost 30 percent.
As a major energy firm, Houston-based ConocoPhillips has a lot riding on the new developments, which also have led several firms to announce capacity expansions for plastic resins and feedstocks. ConocoPhillips' own ChevronPhillips Chemical Co. joint venture has announced plans to build two new polyethylene plants in Old Ocean, Texas.
New shale gas could help not only the chemicals market, but also metals and industrial manufacturing, according to Robert McCutcheon, U.S. industrial products leader with PricewaterhouseCoopers, a New York-based global consulting firm.
New shale gas and oil could create more than 1 million manufacturing jobs and create cost savings of $11 billion by 2025, McCutcheon said, adding that energy firms need to be aware of the environmental impact of oil and gas development. “This has to be done profitably and safely,” he said.
Another change could be on the horizon for U.S. plastics and rubber firms, as that's one of several industries that “may be close to a tipping point … where compelling issues of logistics and transportation costs dictate a return back to the U.S. and North America, said Jim Meil, chief economist with Eaton Corp., a global manufacturing conglomerate based in Cleveland.
“With plastics and rubber, it's a migration of supply chain issue,” he added. “China costs are going up, so there are higher costs of maintaining that existing supply chain. And using natural gas as a feedstock also is lowering input costs in the U.S.”
Meil also has optimistic expectations this year for the U.S. unemployment rate, which he believes will fall to 8 percent after finishing 2011 at 8.9 percent. U.S. housing starts also should increase more than 20 percent to 740,000 in 2012, while Meil expects North American light vehicle builds to climb 15 percent this year to 15.1 million.
For the overall U.S. economy, “slow growth” is expected for the remainder of the year, according to Robert Fry, senior economist with global plastics and chemicals maker DuPont Co. of Wilmington, Del. He added that unless current tax cuts that expire on Dec. 31 aren't renewed by lawmakers, “the hit [to the economy] is going to be pretty big.”
But Fry also advised being cautious when looking at economic data. “In the U.S., the big story is slow long-term growth, not short-term cycles,” he said. “Don't mistake every bad data release for the beginning of a double-dip recession.”