Darryl Terrel manages Eastside Service Gas Station on the Lower East Side. Business has suffered lately. On Wednesday, the price of gas exceeded $4.30 per gallon in New York City.
“It’s taking food from the babies,” Terrel said.
Like most consumers in the American economy, manufacturers fear rising inflationary pressures—but across the country, firms posted gains. Some even showed increased signs of hiring. Cost pressures are real, but materials make up a much smaller part of manufacturers’ cost structures than wages do. Interest rates remain low and wage pressures are minimal.
Economic activity improved in the 12 Federal Reserve districts in March. Most districts cited improved consumer spending—New York especially—according the Federal Reserve’s Beige Book. Outlooks for the near future were positive, although some worry about disruptions to sales or production due to the tragedy in Japan.
Uncertainty over conflict in the Middle East has weighed heavily on people’s minds with the surge of gas prices. Earlier this week Janet Yelen, Vice Chair of the Fed, mentioned a study that exhibits decreased confidence among consumers.
Oil settled above $108 a barrel on Thursday, according to Bloomberg.
While the US economy is especially vulnerable to rising oil prices, manufacturers have certain advantages. They generally use electricity for power instead of oil, said Geoffrey Heal, an economics professor at Columbia University. The country also has a glut of natural gas, which is only affected by North American demand, said Floyd Norris, Chief Financial Correspondent for The New York Times.
But for firms that purchase a lot of raw materials, times are tough.
Josh Hagen, Vice President of Operations for Prem Magnetics, Inc., uses copper and steel to manufacture volt adapters that bring 110 volt sources down to 12 volts.
For Hagen, business was slow last year, but things have been better lately. Hagen said that material prices have been an issue.
“We tried to hold off as long as we could,” Hagen said, “But we had to increase our prices a little bit this year.”
Demand for energy efficient cars may also be on the rise, as energy-conscious consumers scour for models that might lessen their sensitivity to gas prices.
“The more you have these spikes up and spikes down,” said Brian Benstock, General Manager of Paragon Auto in Queens, “People are going to be looking for long-term solutions.”
In the short term, Benstock said he expects shortages due to Japan’s earthquake and tsunami.
Gas prices can be a drag overall, but for manufacturing in the broad sense, other factors—like interest rates—are more important.
“I’d be more interested in what happens to interest rates and labor costs than what happens to commodity costs,” Heal said.
When manufacturers only consider gas prices, it can be nerve-wracking, even painful. According to Gary Greenfield, Secretary Treasurer for Macalaster Bicknell, Co., a glass-distributor in New Jersey, fuel costs are a big worry.
“I look at them [gas prices] everyday,” Greenfield said. “I don’t know why I do.”