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January 2015

Fluctuating Gas Prices and the American Economy

There has been much fervor in the news lately over the steep decline in gas prices and the ripple effect that this will have for American industry and economy.

According to Jonathon Lansner at the Orange County Register, $1 of every $40 spent in California last year was spent on gas. Therefore, a change in the cost of oil represents a significant proportional change in how we spend our money on an individual basis.

Due to the advent of new methods of fossil fuel mining, America now gets its oil primarily from domestic sources. Thus, until domestic resources begin to drop off, gas prices will remain low. Many, including President Obama, have encouraged Americans to respond to this temporary price drop in an appropriate and responsible way: “Take ht money you’re saving, pay off the credit card or go get a new appliance, or buy a fuel-efficient car — so that when prices go back up, you’re still well-positioned” (President Obama as quoted in Seattle PI).

For manufacturers, particularly car manufacturers, the drop in oil prices necessitates adjustments in company habits and in product output. For all types of companies, the drop in prices will mean a temporary decrease in the cost of transporting materials. However, for companies that work in products directly related to gasoline (like cars), the picture becomes a bit more complicated. While in the recent past, emphasis in the automotive industry has been placed on fuel efficiency, trends in the coming years may instead concern appearance, drivability, and other less environmentally friendly features.

As Steve Goldstein points out in Market Watch, we will also need to observe how the drop in oil prices will carry over into other markets aside from transportation and food. As other products may become cheaper, and as the American average salary stretches further with less money allocated to gas, consumption may continue to go up, a pattern already suggested by this year’s Christmas spending increase.

As gas prices drop, so do taxes on gasoline, which suggests that there will be less money in coming years for public works, particularly for transportation projects. With a rapidly declining transportation infrastructure in California and all over the US, a renewed interest in travel by car my indicate a long-term setback for these kinds of important projects.

We may hope that, as President Obama suggests, Americans will take this opportunity to plan ahead and invest in long-term transportation solutions that are more environmentally friendly.

November 2014

Good Projections for a Strong US Economy in 2015

In a recent article at Automation World, analyst Alan Beaulieu encourages manufacturers to look forward to a strong growth potential for the US economy in the coming year, rather than spend time worrying about how news-popular topics will impact business.

As Beaulieu notes, when certain topics (like Ebola or stock market concerns) seem to dominate our news feeds, it can be hard to keep in perspective what the real expected impacts should be. Alarmist language, which makes for popular news stories, can also be greatly misleading and can create an undue sense of urgency in readers. In an excellent recent example, author Jonathan Katz draws attention to a particularly inflammatory chyron from CNN: “Ebola: ‘The ISIS of biological agents?'” As Katz goes on to discuss, this kind of fanning the panic can lead to chaos and inappropriate responses. He uses the example of the media frenzy following the 2010 Haitian earthquake in which falsified reports of looting famine produced a lack of focus on and resources for the real issues.

In his column, Beaulieu does an admirable job of breaking down the real expected impacts of many international news topics with language that is free of any kind of unnecessary editorializing. Indeed, though several European nations may soon see recession conditions, the US has become so self-sufficient in many ways including energy resources, there is no real cause for alarm based on early indications of potential problems.

In addition, as we have previously reported here, the US has started to see an influx in re-shoring, and this trend has been relatively consistent since projections earlier in the year. This has meant that, though the economic climate of China may not stay stable, many companies have taken preemptory measures to safeguard against potential manufacturing interruptions.

Finally, Beaulieu ends his article with some excellent advice for the coming years: “Use the breathing room in 2015 to identify bottlenecks and improve processes. Shorten response and delivery times where possible to beat competitors and to gain market share. Be sure you have sufficient financing, raw materials, labor and capital set to go for a more robust economy in 2016 and beyond.”

November 2014

Global Oil Prices and the Costs of Automation

In the automation industry, there are thousands of factors that determine how a fiscal year will go. Because automation is so heavily related to other important sectors of industry and job growth, it can be extremely interesting to note the ways in which seemingly disparate factors can aggregate to determine the success of individual automation projects.

For example, something as fickle as global oil cost has an impact on the automation industry for a number of reasons. In recent months, we have seen noticeable fluctuations in oil prices, though it had been a steady market for a long time. This has taken some by surprise, and now markets must catch up and account for the ways in which the future of the oil market will continue to affect the output of many industries.


Impacts on Other Industries


In automation, our health in any given year is largely determined by the health of our customer companies. As our customers need to factor an increased amount of their revenue to buying oil, their financial plans will change in other parts of their companies, which may mean changes for any outstanding projects like the development of new automated systems.


Impact on Buyer Markets


Even if a customer company is not directly impacted by changing oil prices, their customer companies, materials suppliers, or end consumers may still be impacted. For example, in today’s oil market, American oil dependence is switching to American and Canadian sources and away from sources in Russia and Iran. However, if an American company relies on Russian suppliers for a different resource, the availability and price of that separate resources may change as the Russian economy changes due to decreased foreign demand for their oil.


The Temporary Domestic Results of Changing Oil Prices


As oil prices change in America, we can see evidence of a consumer base that responds quickly. For example, as American oil prices have dropped due to decreased demand and an influx of domestic supply, the market for cars has picked up (though this defies expectation as in past times, consumers were usually disinclined to decide on a certain type of car during times of volatile oil availability). Manufacturers need to be able to adjust very quickly for these kinds of rapidly changing markets, and in turn their technology companies, like those who build their automated machinery, need to be available to provide support and repairs for machines for which optimal support is necessary for increased capacity. Changing oil prices also affect shipping companies, agricultural businesses, retail, and many other industries.


The Affects of Oil Prices on Jobs


According to, though we might expect increasing oil prices to lead to more jobs with oil companies, this is not what happens in practice. In fact, oil companies tend to be very small-scale employers and do not represent a particularly large portion of the American job supply.

In addition, employers across industries tend to not raise salaries in accordance with rising oil prices. This is often related to recession-like conditions in which people are forced to cut leisure spending in order to have enough for necessities.



The Switch to Alternate Energy Sources


Because many industries have witnessed drastic market changes as a result of volatile oil prices in the past, many companies have now switched to natural gas and other energy supplies. This fortunately means that in today’s market, the impact of volatile oil prices will not be so extreme or direct on many industries, which will slightly lessen the overall burden on companies that do still rely on oil.

In automation, this motivates our desire to embrace alternative energy sources, and to ensure that machines are energy efficient. This will help our customer companies in their efforts to decrease their dependence on oil and will ensure that if there are market fluctuations, that their production will not become wildly more expensive.