Fuel Prices Adversely Effect Manufacturing

Although fuel prices have recently crept back to record highs, we anticipate the fallout to cause unfavorable effects soon.  Since we know fuel prices adversely affect manufacturing, it is only a matter of time until consumer confidence falls and spending of discretionary income comes to a halt.  While many retailers have recently relinquished funds for capital improvements, when consumers quit spending, they too quit spending until consumer confidence is restored.  With 2012 being an election year and many other variables, we can only hope that fuel prices fall before consumers pull back on spending.  Although manufacturing has been very favorable over the past few months and projections are solid for the next couple of months with plenty of contractual obligations, it is the scope beyond that is unknown.

We have spoken about consumer confidence before, but it is imperative for manufacturers to monitor.  Since we are directly affected by the amount of business that retailers receive, we must monitor consumer confidence in order to be cognizant of the potential shortfalls in work, and excess labor.  Unfortunately, when consumers quit spending it is a vicious cycle, and causes many negative affects to occur.

While the workload for the next couple of months is favorable, with many retailers having released funds to complete capital improvements, it is the first quarter scope that could prove troublesome if work is not acquired and consumer confidence is not restored.

Having spoken with several manufacturers throughout various industries, they too are “feeling the heat” caused by the increase in fuel prices.  Although we all know fuel is crucial in our lives, economic leverage is often barred on its price being low and affordable for most. 

Since the government has required oil companies to produce a cleaner fuel which now includes ethanol which is derived from corn, and bean crops, our food prices have increased as well.  Although alternative energy is important, I would point to the ineffectiveness of ethanol as a viable source.  While the concept of cleaner energy is wonderful, when incomes and inflation can’t keep up with the increases, it causes negative affects on the economy.  Fuel is vital in all of our lives weather we like it or not, but should not dictate our economy.  With plenty of oil and alternative energy sources like hydrogen (most abundant element on earth), we have the potential to be sustainable for numerous years, and generate a strong economy with a consumer confidence that is unparalleled.  You probably are asking yourself “If ethanol isn’t the best alternative fuel source, why did oil companies go this direction?”, the answer is, it was the best short term solution to a long term problem.  In order to meet the regulations that the government had implanted, they had to act fast in order to satisfy the guidelines.  Although hydrogen is the most abundant element on earth and “pollution-less”, it is very hard to extract, which would cause it to be expensive, but with some government help could likely be achieved more easily.  I also would say that when the extraction takes place on economies of scale that the price would become more affordable, and is by far a better alternative fuel source than ethanol.

By using a viable alternative energy source that is sustainable, we as a nation would be less dependent on oil and our economy would be rejuvenated with jobs and expendable income that could be used within retail establishments, restaurants, entertainment, etc, or to start a new company.  Since consumer confidence is based off of expendable income, I believe we should look ahead at the real problem and fix the problem at hand which is FUEL PRICES.  If we can get closer to a controlled fuel price meaning alternative fuel source, we can create a STRONG Economy and Manufacturing Will Be Sustainable.  Until then, we are tied to the hips of oil companies and must hope that fuel prices fall, consumers keep spending, retail establishments continue to flourish, and that a viable fuel source is created to lessen our dependence on oil companies.