By Michael Pento
As someone who cheers for the success of this great country, I desperately want to believe in the concept of America’s energy independence. In the past decade we have been inundated with predictions of the U.S. becoming the next Saudi Arabia of oil and natural gas production. Fracking, tar sands, shale gas, et al., are supposed to bring about a manufacturing renaissance and trade surplus in the near future. But, as of now there isn’t much evidence we are headed in that direction.
It is true that the U.S. is importing much less oil than in the past. During 2005 we imported 60% of our oil consumption--that dropped to just 40% last year. The fact is we are producing more oil and natural gas--so why aren’t we enjoying any of those real benefits?
Natural gas prices have plunged from the low double digits in 2008, to $3.5/mcf currently; most of which was caused by the overwhelming belief that we would be suffocating in natural gas by now. However, prices bottomed 18 months ago and now seem to be headed higher. Conversely, in the case of oil, prices have been rising over the past four years from below $60, to over $105 per barrel today. Therefore, so far at best it’s been a mixed picture on seeing reduced energy prices from the oil and gas revolution we were promised.
Where are the benefits?
But has the increased energy production boosted our manufacturing sector or helped with our balance of payments deficit? The short answer is "no."
Manufacturing as a percentage of GDP was 11.9 for last year. That figure is down from 12.1% during 2007. And, most importantly, there was an average of 13,879,000 persons employed in the manufacturing sector during 2007. The average number of persons employed in this sector by 2012 plummeted to just 11,919,000. This trend is continuing, with the U.S. losing 52k manufacturing jobs Y.O.Y. from June 2013. It’s simply hard to come up with a story about a domestic manufacturing renaissance when we lost nearly 2M jobs in just the last five years.
Also, there hasn’t been any significant improvement in our trade deficit since the Great Recession ended. The downturn in the economy and global trade occurred in the summer of 2009. The U.S. trade deficit was $32 billion in July of 2009; it has slowly climbed back to over $45 billion in May of this year.
More than just energy
It is my hope that our increased energy production will lead to low natural gas prices that are sustained, much lower oil prices from where they are today, a boom in manufacturing jobs, and a trade surplus in the near future. Nevertheless, we don’t seem to be headed in that direction at this time.
Perhaps the best explanation for this is that a revival of the goods-producing sector of the U.S. economy requires much more than just an increase in domestic energy production. If we don’t also reform our tax structure, reduce regulations, lower labor costs, boost the educational system, stabilize interest rates and strengthen our nation’s balance sheet it won’t fix the problem ... even if we had all the energy production in the world.