Thank Oil and Gas for U.S. Jobs Uptick, UMD Business Experts Say

Media Alert:  July 31, 2014

Attention:  Economic, business or public policy reporters and editors

COLLEGE PARK, Md. - Responding to U.S. employment figures, economic strategy experts in the University of Maryland’s Robert H. Smith School of Business, say cheaper, plentiful energy is fundamental to the apparent economic upswing.

Ahead of the Department of Labor’s July jobs report, an ADP National Employment report showed private sector jobs increased by 218,000 in July for a fourth straight month of 200,000-plus jobs added to the U.S. economy – a trend driven, according to the report, by broad gains across all sectors including energy.

Charles Olson, professor of the practice in the Department of Logistics, Business and Public Policy, says there is little doubt about the causal connection between increasing employment and increased energy production.

 “A recent media report identified North Dakota as home to the nation’s fastest-growing airports – the result of an oil and gas boom increasing jobs and wealth. Initially the cheap gas fed power plants, which reduced electric bills and thus increased disposable income. This has caused more spending and indirectly created more jobs.

“With confidence that cheap gas and oil will continue comes plans to turn the gas into higher valued plastics and chemicals; this creates construction and production jobs.

“ExxonMobile is expanding its Baytown, Texas complex with a multi-billion dollar ethane cracker. Construction started in June and is surely responsible for recent job creation. Sasol is building a $20 billion gas to diesel plant in Louisiana. State and local tax collection from these projects is further creating jobs.

“This multiplier effect ripples through the economy, and the cycle has a long way to run, as many projects are still being announced and will be under construction for several more years.”

Curt Grimm, professor and Charles A. Taff Chair of Economics and Strategy, says history shows energy’s role in economic recovery.

“Jobs have come back slowly as we slowly recover from the damage to the economy from the subprime mortgage crisis. As we recover from this ‘hangover,’ which in short means getting the banking and housing markets back on sound footing, the strong fundamentals of the U.S. economy kick in. One of these fundamentals is cheap and plentiful natural gas, which is a very positive factor regarding U.S. economic performance. One way to think about this is to recall the 1970s’ period of stagflation, to which the spike in energy prices from OPEC strongly contributed. This is, and will continue to be, a very positive factor.”

Grimm says the reshoring of U.S. manufacturing can offset overseas cheap labor through technology.

“China, and India to a lesser degree, has been attractive for manufacturing because of low labor costs. However, (China) has lost some of that advantage as its economy has grown and wages have increased.  They – and other low-wage countries – always will have an advantage for manufacturing which uses a lot of low-skill labor. However, robotics, and other high-tech factors, gives the United States an advantage for manufacturing – such as automaking – that uses very sophisticated technology and high-skilled labor.”

Contact Grimm at cgrimm@rhsmith.umd.edu or 301 405-2235.

Contact Olson at colson@rhsmith.umd.edu or 301-405-8666.