by Kenan Fikri

Summary: Manufacturing construction activity has exploded in the Mountain West over the past two years, beating all other regions in terms of value put in place in 2022. The collection of eight western states appears to be leading the build-out of the next, federally-supported, reshored generation of American manufacturing, followed by the auto corridor.

The early returns suggest the Mountain West could be the big winner in the new era of industrial policy and partial deglobalization. Newly released estimates from the U.S. Census Bureau show a massive spike in manufacturing construction activity in the region over the past two years, building on the sector’s strong recent growth locally. The Mountain West covers eight states: Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. With specialization in computer-related products, clean technologies, and other advanced and tech-enabled manufacturing activities, the region appears to be capitalizing on its advantages to land new investments in several emerging or reshored industries. Regardless whether one cheers the modern embrace of industrial policy or worries at its long-term implications and hidden costs, the repercussions of the paradigm shift are becoming visible in the data.

The desert blooms

The Census series, released for the first time this month, provides nearly real-time estimates on the value and location of manufacturing-related construction activity each month, a proxy for where capital investments are being made and where manufacturing capacity is poised to come online. The value of private manufacturing construction done  in the Mountain West region increased five-fold over the year and a half to December 2022. For the month, that rocketed the region to the number two spot, just behind the West South Central region (covering Texas, Louisiana, Oklahoma, and Arkansas), which is the traditional heartland of capital-intensive heavy manufacturing in the United States. Over the full year, however, the Mountain West beat out every region including West South Central, with $26.5 billion worth of manufacturing construction put in place. As recently as 2017, the value of manufacturing put in place in the region was only $4.2 billion. 

An electric jolt

The other region seeing a huge bump in investment is the auto corridor (here defined as a combination of the East North Central–Michigan, Ohio, Indiana, Illinois, and Wisconsin–and East South Central–Kentucky, Tennessee, Alabama, and Mississippi–Census divisions, tracking the footprint of the automotive industry and its supply chain up and down Interstates 65 and 75). The Census dataset does not break out manufacturing construction activity by industry, but announced investments by automakers lend credibility to the hypothesis that their new investments are driving the numbers in the region. The value of construction put in place each month more than doubled over the course of 2022. 

In both the Mountain West and the auto corridor, these new investments are expanding and enhancing the country’s industrial base. However, the two regions’ stories may differ in the extent to which they represent net gains in the U.S. share of global manufacturing activity. The automotive industry is undergoing an epochal shift towards electric vehicles, where new capacity is needed to replace the old simply to maintain market share. Over the long-term, unless electrification leads to a durable increase in demand for vehicles, a sizable portion of the domestic auto industry’s output and employment will simply shift from old plants built around internal combustion engines to new ones built around batteries and electric. Yet it does appear that the region may also expand its share of the pie, not just maintain it, as supply chains are reconstituted and federal incentives and support–industrial policy–attract wholly new firms and facilities to the United States.

The right recipe

The story in the Mountain West, by contrast, may be more one of reshoring activity that had long since departed the United States or building out new capacity in critical technologies. No doubt the massive investments in semiconductor fabs in Arizona by Intel and Taiwan Semiconductor Manufacturing Company helped vault the region’s construction numbers skywards. The region already specializes in advanced technology and digital industries and has long benefitted from tight connections to the Pacific Coast’s innovation engines. The Mountain West’s profile in American manufacturing had already been growing steadily and much more quickly than in other regions, as the chart below visualizes starkly. Geopolitical tailwinds now leave it in an even stronger position.

From January 2017 to December 2022, the number of manufacturing jobs in the Mountain West grew by 18 percent, more than twice the rate of the second-strongest region, West South Central. Net manufacturing job growth was lower in the East South Central region (3 percent) and much more modest in the East North Central region around the Great Lakes (1 percent)—both of which still have much larger, if slower growing, manufacturing bases than the Mountain West. Nationwide, manufacturing employment increased 4 percent over the period. The construction activity data imply that manufacturing employment growth rates may accelerate further in the Mountain West in the coming months, since the construction figures serve as leading indicators of hiring (the facilities must be built before they can be filled with production workers).

Shifting sands

The emergent, sub-national geography of manufacturing in the new geopolitical age is coming into focus, and it’s centered much more around Scottsdale than it is Scranton. To be sure, all regions except West South Central saw more construction put in place in the manufacturing sector in 2022 than they did in 2017 (and even the exception saw $25.7 billion worth of activity). All regions are participating in the nation’s accelerated industrial build-out. But with a young and highly-educated workforce, growing population, dynamic economy, and business-friendly tax and regulatory environment, the Mountain West has taken an early lead in capitalizing on shifting sands to advance its own economic development. 

The region’s manufacturing growth may face limits—affordability for one, as the region grapples with the country’s fastest-rising housing costs and hottest inflation rates, as well as environmental, as new industrial capacity strains already tight water supplies. The value of construction put in place may fall back to earth after a few large semiconductor fabs come online. But with strong ties to the technology industry and an existing base of advanced manufacturers, the region appears well-positioned to keep growing its share of the sector—still at just over 5 percent of national manufacturing employment. 

The new American industrial policy mixes a national security edge with an urgency around the climate crisis and an infusion of nostalgia. Manufacturing employment peaked in 1979, more than four decades ago, and it has been 12 years since it troughed in 2010. The latest figures from the Census Bureau underscore how very different what comes next will be from what–and where—manufacturing once was. While some early wins are registering on the board, it is important to remember the potential losses—job cuts or missed investment abroad; innovations foregone; alliances strained and trade ties weakened; inefficiencies introduced; incentives skewed; redundant capacity built; price and quality costs to consumers looming—are and will remain much harder to quantify. 

Economic Dynamism Geographic Trends  Spatial Inequality

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