by Connor O’Brien
Key Takeaways:
- Manufacturing construction in April nationwide was up 104 percent over the same period last year. The value of private manufacturing construction in April totaled $15.3 billion, reaching $132 billion over the last 12 months.
- Nonresidential construction has surged in the aftermath of the Covid-19 pandemic, driven in part by enormous increases in manufacturing construction.
- Fueled by elevated demand for durable goods and historic federal investments in chipmaking, electric vehicles, and renewable energy, manufacturers are in the midst of a major factory boom that is slowly starting to change the geography of American manufacturing.
- Regionally, the manufacturing construction boom has continued its torrid pace this spring in the Mountain West, Upper Midwest, and parts of the Southeast.
- The nominal monthly value of manufacturing construction projects in April jumped $2.3 billion (264%) in the East North Central Census division, $1 billion (49%) in the Mountain division, and $1 billion (171%) in the South Atlantic division compared to April 2022.
- Compared with January 2017, manufacturing construction is up nearly fivefold in the Mountain division, fourfold in the East North Central, and has more than doubled in the East South Central in real terms.
Introduction
The post-pandemic boom in manufacturing construction continued into this spring, even accelerating well beyond last year’s surge, new data from the Census Bureau shows. In April, the value of manufacturing construction projects underway totaled more than $15 billion—more than double the total in April 2022 and up more than 80 percent in real terms. The rollout of major federal subsidies in the CHIPS and Science Act and Inflation Reduction Act signed into law last year and a concurrent surge in private sector investments in new facilities across the country have provided a significant boost to a national economy that has otherwise shown indications of softening. Further, the gradual realignment of the geography of manufacturing that EIG has previously discussed—though hardly transformative thus far—has continued well into 2023.
Manufacturing has driven the nonresidential construction surge
In the wake of Federal Reserve rate hikes, new single-family residential construction—which is historically sensitive to interest rates—has fallen by one-quarter in seasonally-adjusted terms since April 2022, nearly flatlining overall construction growth. However, nonresidential construction has proven resilient over the last year, growing more than 30 percent in nominal terms. Nearly all sub-components of this category have seen double-digit percent growth over the last year, with manufacturing construction’s explosive growth driving the substantial increase.
Nationwide, the value of nonresidential construction projects underway clocked in at a seasonally-adjusted annual rate of $655 billion, $188 billion of which was for manufacturing projects. Between April 2022 and April 2023, growth in manufacturing construction accounted for more than 60 percent of the growth in overall nonresidential construction.
In real terms, the major component behind the sector’s surge is what Census defines as computer, electronic, and electrical industries. The former includes semiconductor manufacturing and associated equipment, while the latter includes “products that generate, distribute, and use electrical power.” Critically, it also includes batteries, which will be a key component in the eventual transition to electric vehicles. Sustained demand for durable consumer goods and federal subsidies behind both renewable energy generation and storage and chipmaking have likely played a major role here.
Manufacturing construction booms in the Mountain West, Upper Midwest, and Texas have continued
The regional divergence in manufacturing construction has continued to widen into the spring as select regions’ build-outs accelerate and others fail to get off the ground.
The Mountain division, which saw enormous increases in manufacturing construction in late 2021 and into 2022, saw a continued acceleration this spring. The collection of states which were typically home to between five and seven percent of manufacturing construction in the years leading up to the pandemic now consistently sees between one-fifth and one-quarter of such construction activity nationwide. With more than $3.2 billion worth of manufacturing construction projects underway in April (in nominal terms), the Mountain division landed just behind the West South Central region centered around Texas—the nation’s longtime leader in manufacturing construction.
Notably, the factory construction boom is also bringing new life to some historic manufacturing hubs. In fact, the East North Central Census division—approximately corresponding to the Upper Midwest—saw the largest relative increase in such construction among all regions over the last 12 months; nearly $3.2 billion worth of projects were underway in April, up from $875 million in April 2022. Rather than simply fleeing the twentieth century home of American manufacturing in search of lower labor costs, some firms are finding renewed value in existing “communities of engineering practice” as the sector shifts to advanced manufacturing.
However, the build-out sweeping some parts of the country has failed to materialize elsewhere, leaving a few regions at or below immediate pre-pandemic highs. In the two northeast divisions, New England and the Mid-Atlantic, manufacturing construction remains roughly half of what it was in January 2020 in real terms, while it is up a mere five percent in the Pacific region.
Notably, the South Atlantic is also worth highlighting as a region in the midst of a multi-year construction and establishment boom that predates the pandemic. In these states, the ongoing, longer-run shift of economic activity towards regions like the booming Atlanta metropolitan area perhaps masks the more recent acceleration in factory construction following the passage of the Inflation Reduction Act. Though the region saw a later start to its post-pandemic surge compared to the Mountain West, the South Atlantic’s build-out coincides nicely with federal subsidy commitments on which the region is poised to capitalize. Indeed, a slew of high-profile investment announcements in the region, particularly in auto manufacturing and batteries, followed the bill’s passage.
Manufacturing employment has grown rapidly in the Southwest and little in the Northeast.
As a lagging indicator, employment growth will be an important signal of whether recent construction trends are translating into real regional economic shifts. Indeed, BLS data going back to 2017 does show a regional shift of manufacturing employment towards the Mountain division and parts of the Southeast, while New England and the Mid-Atlantic have exhibited slow growth or outright contraction.
Of the more than 530,000 net manufacturing jobs added nationally since January 2017, more than 100,000 have come from the Mountain West, which is home to a number of states currently experiencing the fastest growth in manufacturing employment. Manufacturing employment in Nevada has grown over 50 percent since the start of 2017, translating to an additional 23,000 new jobs. Arizona netted more than 33,000 manufacturing jobs over the same period, or more than a 20 percent increase. Utah has also seen rapid manufacturing job growth alongside its factory boom.
Florida and Texas have together accounted for nearly one-third of national manufacturing job growth since 2017, the former adding 56,000 jobs and the latter a nation-leading 108,000. Whereas factory growth in the Mountain West is a relatively new phenomenon, explosive growth in factory construction in the Texas region predates the pandemic and subsequent recovery, perhaps suggesting this trend is here to stay.
Conclusion
The ongoing factory boom in the Mountain West, Texas, and the Upper Midwest continued to accelerate into the spring. As the macroeconomy begins to normalize post-pandemic and residential construction slows, manufacturing construction has proven resilient both in the historic manufacturing hub in the Upper Midwest and among new regional leaders in renewable energy, battery, and semiconductor production. Whether the boom can persist as the national economy rebalances away from durable goods remains to be seen, but the continued rollout of federal investments in electric vehicles and other advanced manufacturing priorities will provide a major tailwind to industries primed to take advantage.
