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Soaring Energy Costs Fuel Speculation in Manufacturing

Chris Geehern says that even minor surges in fuel and electricity costs are cause for concern among the region’s manufacturers.

So when the talk about the upcoming winter includes speculation about 30% or 40% increases in electricity costs and the possibility – if not the likelihood – of rolling blackouts, then those in this sector have good reason to be alarmed.

“Manufacturers are large consumers of electricity,” said Geehern, vice president of the Associated Industries of Mass.

(A.I.M.) “So as we head into what could be a long, cold winter, there is a lot of concern in that sector.”

How that concern will manifest itself remains to be seen, said Geehern, adding that much depends on just how severe the winter is and what transpires with other related issues, especially the broad subject of health care reform and proposed legislation with mandates requiring employers to assume more of the cost of that care.

The confluence of these issues will determine if and to what extent the region can build on some modest growth in manufacturing employment recorded over the past year, said Geehern.

Between October 2004 and October ’05, the number of manufacturing jobs in the Greater Springfield area climbed from 39,600 to 40,200, he explained, adding that the ’05 figure probably does not reflect layoffs at Springfield’s Danaher Tool plant, Holyoke’s Ampad facility, or other recent closings.

Geehern speculated that much of the 1.5% growth recorded since October of ’04 came in the durable goods realm, specifically aerospace-related products and medical device manufacturing. This compares to relatively flat numbers the previous few years, and declines for much of the past decade.

“That 1.5% increase may not sound like much, but it’s a pretty good number, especially when you look at the rest of the state,” said Geehern, noting that, over the same period, manufacturing employment in the Commonwealth fell from 313,400 to 312,500, a .2% drop.

Given the projected increases in electricity and fuel prices and other factors that may increase the cost of doing business, the region is unlikely to see 1.5% job growth between now and next October, Geehern said, adding that while smaller increases are likely, overall job loss is a distinct possibility.

The worst-case scenario, he said, is that plant owners, especially those with facilities in other regions of the country or overseas will be prompted by those increasing costs to move operations out of the Pioneer Valley.

Bruce Stebbins, director of the regional office of the National Assoc. of Manufacturers (NAM), agreed that energy prices will likely be the most critical challenge for manufacturers in the year ahead. The reason is that the soaring costs touch producers in many ways – from heating and lighting plants to production processes (most of which involve petroleum- based products of some kind) to shipping expenses.

“And although there’s a little more flexibility on pricing than there has been, it’s very difficult for most manufacturers to pass on those additional costs to consumers,” he said.

Nancy Creed, a spokesperson for Springfield-based Western Mass. Electric Co., said new, much higher rates for electricity will go into effect Jan. 1. Increases, which result largely from soaring natural gas prices in the wake of Hurricane Katrina, will vary with the size of the customer, she told BusinessWest. Large users, many of them manufacturers, will see increases of about 50% over current rates, while smaller businesses will see costs rise about 28%. The rates are higher for the larger users because there are fewer of them and their demands are greater, she explained.

To date, there have been few calls to the utility concerning the increases and how to cope with them, said Creed, who expects that to change with the arrival of the first bills reflecting the new rates. WMECO is being proactive, she added, noting that letters have been sent to customers explaining the increases and outlining conservation programs.

“Conservation is really their best tool,” said Creed, referring to area business owners.“We can’t control the marketplace, butwe can help people control their consumption.”

While doing battle with soaring energy costs, many manufacturers are facing another challenge, said Stebbins – finding enough help.

Indeed, even at a time when some plants are closing or scaling back, many producers are struggling to find qualified workers, he explained, noting the problem is national, not regional in scope.

It is outlined in a study commissioned by NAM that identified what the agency is calling a “workforce skills gap.” More than 800 manufacturers were surveyed nationwide, said Stebbins, and roughly 75% of them said they have or had plans to hire, but can’t find the help.

Theories abound, he said, but the probable causes for the shortage include the retirement of many long-time manufacturing sector workers and a subsequent shortage of replacements, as well as a general shift in opinion about the sector following substantial job losses in the ‘80s and ‘90s.

To inform young people about the opportunities that exist – and eventually change some attitudes in the process – NAM launched a program called “Dream It, Do It.” The initiative educates young audiences about jobs in the field and the educational requirements needed to perform them.

“Locally, there is recognition of the fact that there are not enough qualified people out there,” said Stebbins, noting that there is interest among area manufacturers in‘Dream It, Do It’ and other programsdesigned to put more people in thepipeline.