Nonwage costs for U.S. manufacturers, which include the costs of energy to do business, have increased from 22.4% to 31.7% in the past three years, the National Association of Manufacturers (NAM) reported last week. Between 2002 and 2004, it said domestic natural gas costs alone rose 59% to $39.3 billion.
NAM, the Manufacturing Institute and the Manufacturers Alliance/MAPI unveiled “The Escalating Cost Crisis” study on Wednesday. Put together before the recent drop in gas prices, the report updates a previous one issued in 2003. It analyzes five structural, nonproduction costs: corporate tax rates, employee benefits, legal costs, natural gas prices and pollution abatement. The report noted higher energy costs put the United States at a disadvantage with its trading partners.
“There can be no doubt that past inaction has hampered manufacturing’s tremendous economic contributions,” said NAM CEO John Engler. “Take, for example, the energy component of these external costs. Since the 2003 report was issued, natural gas prices have soared, due in part to Hurricane Katrina, but more significantly because federal policy sharply limits exploration and domestic production of both natural gas and oil.”
Historically, Engler said, gas prices were a competitive advantage for U.S. manufacturers, costing on average 30% less than the nine major trading partners in the mid-1990s. This advantage turned into a competitive disadvantage as the average cost of gas for those nine major trading partners was 0.7% below the price paid by U.S. manufacturers in 2005. U.S. manufacturers consumed nearly 6,500 trillion Btu of gas in 2002, which accounted for 28% of total U.S. gas consumption. Four major industry groups — chemicals, petroleum and coal products, primary metals and paper — accounted for 68.1% of the gas use by industry.
“Importantly, unlike petroleum, natural gas does not have a global price, so by limiting domestic supply, government policies have led directly to higher prices, undercutting U.S. manufacturers’ competitiveness and hurting job growth in manufacturing,” said Engler.
“By standing still, the United States is falling behind. To turn this tide, the NAM and its members are pursuing an aggressive agenda to enhance their ability to compete in the global marketplace. The stakes are enormous and every legislator should be concerned with this study. Manufacturers account for nearly three-quarters of this nation’s industrial research and development and consume over one-quarter of the country’s natural gas.”
Engler said the U.S. Senate’s “inaction on these issues, due to a small number of obstructionists, has hampered manufacturers’ tremendous economic contributions and played a large role in creating this cost disadvantage.”
MAPI’s Jeremy Leonard, who authored the report, said the rise in total costs for manufacturers “is an astonishing increase from just three years ago. Because of these escalating costs, fewer new manufacturing jobs have been created, and less is available to invest in research and development and worker training.”
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