A Structural Change Coming in U.S. Employment — Cheap Natural Gas Price a Deal Changer

Job growth continued at a moderate pace, adding an estimated 203,000 net new jobs in November of 2013, essentially flat from the 200,000 gain in October 2013, as reported by the U.S. Bureau of Labor Statistics. In the past 12 months, the U.S. has averaged 191,000 net new jobs per month. Good news was that job growth in November occurred in almost all segments of the economy, with only Federal government employment showing a decline in total jobs. Segment data includes:

  • +31,000 Transportation and Warehousing Jobs
  • +28,000 Health Care Jobs
  • +27,000 Manufacturing Jobs
  • +55,000 Professional and Business Services Jobs
  • +22,000 Retail Trade Jobs
  • +18,000 Food Services and Drinking Places Jobs
  • +17,000 Construction Jobs
  • -7,000 Federal Jobs
  • Flat on Mining and Logging, Wholesale Trade, Information and Financial Services Jobs

The economy is still down 1.291 million jobs since the peak as of January 2008. At the current pace, however, the country is just six to seven months away from having the greatest employment level in history. The following graph shows the systematic recovery that has continued since 2010.

12-6-13 graph1

We now have a deal-changer in the U.S. economy – copious quantities of affordable natural gas as a result of hydraulic fracturing of shale formations . In the past 12 months, manufacturing has added 76,000 jobs, with one-third of those coming in November. I believe this will be a longer-term trend – literally decades — as energy prices have assured the U.S. of a large supply of affordable natural gas.

Historically, as oil prices escalated, likewise did natural gas. The advent of massive increase in natural gas production, has now made the feedstock for the petrochemical industry very affordable despite $100 per barrel oil prices. This is becoming a major deal changer for the U.S. economy. The trend will be towards increased manufacturing employment.

The following graph illustrates the historical relationship between oil and natural gas. Note the marked departure in 2010 when oil prices escalated and natural gas prices fell.

12-6-13 graph2

Assuming the long-term price relationship still held, how much would we expect natural gas to cost today? The expected cost of natural gas, based on today’s oil price, would be almost double. Hence the cost of natural gas at the well head has essentially been halved due to hydraulic fracturing. This is just now driving core job growth in the U.S., a trend will expand.

Will there be some hiccups as the U.S. economy expands manufacturing? You bet, but the general trend in manufacturing employment will remain positive.

Finally some good news on the horizon.

Ted

Comments

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