A factory construction boom is sweeping the United States. Almost 60 percent of the spending is attributed to computer and electronic manufacturing construction, prompted by pandemic-induced snarls, geopolitical risk and a U.S. industrial policy push to boost domestic clean energy manufacturing.
Economics expert Rana Foroohar told Yahoo News, “Supply chain interruptions are now happening every 18 months to three years. So this is not a black swan event. This is something that for a variety of reasons is becoming the new normal.”
In April 2023, manufacturing’s share of construction spending hit a 30-year high with another record high in May. U.S. construction spending by manufacturers has more than doubled in the past year, reaching an annual rate of almost $190 billion in April compared with $90 billion in June 2022.
With subsidies worth tens of billions of dollars designed to establish a domestic supply chain for electric vehicle (EV) batteries, critical minerals and semiconductors, along with a significant rise in private investment, experts believe we are in the early days of a U.S. manufacturing supercycle.
A manufacturing supercycle
Over the past four decades, we have had persistent underinvestment in U.S. manufacturing. In stark contrast, manufacturing investment is now surging. Mega-billions are pouring into gigafactories to produce battery cells, components, materials and semiconductors.
Joseph P. Quinlan, head of CIO market strategy at Merrill and Bank of America Private Bank, told Axios, “We believe the U.S. is in the early stages of a manufacturing supercycle. It’s really gotten the attention of the world. When you talk to companies in South Korea, Japan, Europe, all they want to talk about is building out a presence in the U.S.”
U.S. policy has created supportive conditions for reshoring and FDI facility construction via the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA) and CHIPS and Science Act. Each one provides funding and tax incentives to spur on U.S. manufacturing where the United States has an excess dependency on imports.
A recent briefing from the U.S. Department of the Treasury reviews the reasons behind the “doubling of real manufacturing construction spending since the end of 2021 and, […] the near quadrupling of real construction spending on computer, electronics and electrical manufacturing.”
The Treasury Department notes that “the surge appears to be uniquely American.” In other words, other advanced economies have not experienced similar manufacturing construction surges. The Reshoring Initiative’s data concurs on the magnitude and focus of the investment, with EV battery and semiconductor investments accounting for the largest portions of job announcements in 2022, a 53 percent increase from 2021. Manufacturing job announcements continued to outpace recent records, adding 101,500 jobs in 2023 Q1.
Industrial demand
JLL, a Fortune 200 global commercial real estate firm recently released its Industrial Demand study, which revealed activity had in fact increased over the last two years due to the increased demand for domestic EV and semiconductor supply chains. The report found 19.35 million sq. ft. of manufacturing demand on the market and JLL Research is tracking more than 77 million sq. ft. of manufacturing facilities under construction across the United States. I contacted JLL and obtained more insight.
“The high cost of shipping, labor shortages and port delays have pushed many manufacturers into the United States,” suggests Mehtab Randhawa, JLL’s global head of industrial research. “The opportunity to shorten supply chain operations at a reasonable cost is an advantage that comes with reshoring. EV and semiconductor companies have moved closer to their end consumer and with that we are seeing their suppliers set up operations in close proximity.”
“Supply chain professionals are focused on three key priorities: cost, service and risk mitigation. Companies must continually re-evaluate their supply chain networks as a result,” adds Rich Thompson, global head of supply chain consulting at JLL. “The manufacturing resurgence we are seeing in the United States is real and makes sense. The objective is to build out regionalized supply chains that place manufacturing closer to the end consumer to reduce cost, complexity and risk.”
Two hundred billion dollars in semiconductor facility investments were announced from May 2020 to April 2023 across the United States, including more than 50 new semiconductor ecosystem projects. The announcements include the construction of new semiconductor manufacturing facilities (fabs), expansions of existing sites, and facilities that supply the materials and equipment used in chip manufacturing. For example, Micron announced plans to spend $20 billion to build a new semiconductor fab in New York, in addition to up to $100 billion over the next 20 years on expansions to the plant.
Investments planned for lithium-ion battery factories now exceed $40 billion, creating a “gigafactory boom,” according to Michael D. Plante, senior research economist and advisor at the Federal Reserve Bank of Dallas. Case examples include General Motors and Samsung SDI’s $3 billion investment in a joint venture battery cell plant in Indiana with 1,700 jobs expected. Toyota’s North Carolina battery manufacturing facility that was initially announced as a $3.8 billion investment has since expanded to a $5.3 billion facility creating about 2,000 new jobs. Ford Motor Co. plans a $3.5 billion investment to build nickel cobalt manganese and lithium iron phosphate batteries creating 2,500 jobs.
Are you thinking about reshoring? Our main mission is to get companies to do the math correctly using our Total Cost of Ownership calculator (TCO). By using TCO, companies can better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors. For help, contact Harry Moser at 847-867-1144 or harry.moser@reshorenow.org.
