by Connor O’Brien
Key Findings
- The nationwide boom in manufacturing construction continued into 2023. In February, the value of manufacturing construction in dollar terms was nearly 80 percent higher than three years prior.
- Some geographic regions are seeing much larger relative increases in manufacturing construction than others, with the Mountain West, East North Central (Upper Midwest), and East South Central (AL, KY, MS, TN) Census divisions leading the way.
- The Mountain West region’s rise has been particularly striking. The value of manufacturing construction activity in the region is now six times higher than in 2017, powered in part by the burgeoning expansion of semiconductor manufacturing in Arizona and Utah.
- Though post-pandemic growth has not yet fundamentally shifted American manufacturing’s historic center of gravity, new investments promise to at least tilt it further towards the South and Mountain West.
Manufacturing construction is surging across the country
There is a manufacturing boom afoot across much of the United States, as a dramatic surge in new investment in plants and factories spills over into some unexpected places. Manufacturers are building out new capacity at an historic clip, initially spurred by a rapid recovery in demand for durable goods following the sharp but brief Covid-19-induced recession and now fueled by federal subsidies in the Inflation Reduction Act and CHIPS and Science Act (as well as accelerating decarbonization and supply chain resiliency timelines).
Nationwide, the value of private sector manufacturing construction came out to over $10.9 billion in February, up nearly 80 percent in nominal terms over February 2020, just before the start of the last economic downturn. Even as the construction sector broadly has exploded in the aftermath of the pandemic–private construction of all types was up 27 percent over February 2020, in part driven by a sharp rise in housing construction–manufacturing construction has outpaced the overall sector and reached a multi-decade high in the share of national construction for which it accounts.
Further, thanks to a new experimental dataset from the Census Bureau we first highlighted earlier this year, we can break down how this investment is spread geographically down to the Census division level. From this vantage point, we see some regions have experienced a much more rapid increase in manufacturing construction than others—manufacturing construction in the Mountain West division has surged to more than five times its monthly levels in 2017 and 2018. The East North Central division–the Upper Midwest states that have historically been a hub of American manufacturing–has seen a decisive rise as well. The East South Central division, a smaller historic automobile manufacturing center which includes Kentucky, Tennessee, Alabama, and Mississippi, has seen a substantial build-out, too.
Despite seeing a slower acceleration of manufacturing build-outs than any other region, the West South Central division encompassing Texas, Oklahoma, Arkansas, and Louisiana is still home to more of such construction than anywhere else. Over the last 12 months, nearly $29 billion worth of manufacturing construction alone has taken place in the region. At $27 billion, the Mountain West division came in just behind.
The recent build-out has not yet uprooted the traditional hubs of American manufacturing, but signs of a shift are showing
The surge in construction in the manufacturing sector has brought new facilities and investments to a Mountain West region that has historically played only a small role in the national manufacturing ecosystem. Yet, despite the dramatic increase in construction over the last two years, it has not yet fundamentally altered the geography of American manufacturing.
Examining each Census division’s share of manufacturing GDP (or value-added), we find each division’s share is relatively stable across the last two decades. One exception is the Pacific division (CA, OR, WA), which has increased its share of manufacturing GDP from 14 percent to 20 percent since Q1 2005. Interestingly, this region has experienced very little of the recent manufacturing build-out.
Taking a more granular, county-level view of employment concentration in the manufacturing sector, the legacy of expansions in the early (Upper Midwest) and mid-20th century (the East South Central division) remain very clear. In the so-called “Rust Belt” and in a region stretching across the South from Kentucky through Tennessee, Mississippi, and Alabama–historically associated with second-generation auto and textile manufacturing facilities–workers remain disproportionately employed in the manufacturing sector. The Location Quotient, one means of measuring employment concentration in a given industry relative to the national average, shows the continued persistence of an East-West divide through Q3 2022.
If the manufacturing sector’s center of gravity is set for another geographic shift, it will likely take decades to fully manifest. Nevertheless, there are additional signs beyond manufacturing construction data that the sector is continuing to shift west and southward. Examining manufacturing value-added at the state level, we find Western states have seen much more rapid growth since 2005. Manufacturing’s value-added has grown more than 80 percent in real terms in California, Arizona, and Utah, with similarly-large increases in Colorado, Idaho, and Utah. Over this same period, manufacturing output has grown between 10-20 percent in historic manufacturing states like Michigan, Indiana, and Illinois, while it has outright fallen in Ohio.
Growth in the number of private sector business establishments has been greater in southern and western Census regions over the past half-decade, too, another sign the ongoing build-out is potentially seeding further long-run growth in new places.
Industry Spotlight: Semiconductor hubs are emerging in Arizona, New York, and Texas
The build-out of the semiconductor manufacturing industry, supported by the CHIPS and Science Act signed into law last summer, has yielded perhaps the highest-profile cases of the post-pandemic manufacturing construction boom.
Aggregating data from the Semiconductor Industry Association, German Marshall Fund, and public investment announcements, we can approximately map the distribution of recent and upcoming chip manufacturing investments announced or completed since 2020. Three clear hubs are emerging: one centered around Phoenix, another in central Texas, and a third in upstate New York. Anchoring these hubs are major commitments from four of the world’s largest semiconductor manufacturers—TSMC (Arizona), Intel (Arizona), Samsung (Texas), and Micron (New York)—to expand operations and invest tens of billions of dollars each.
In a Notice of Funding Opportunity issued in February by the Department of Commerce, program officials envisioned spurring the creation of at least two logic chip hubs, along with expanded capacity for manufacturing memory chips. As the two global leaders in leading-edge logic chipmaking, TSMC and Samsung appear the most promising candidates to anchor such hubs. Additional clusters centered around large Intel investments in central Ohio and upstate New York may also emerge as a third such cluster, each of which would bring substantial new investment and jobs to states whose manufacturing sectors have lagged well behind other regions over the last two decades.
Conclusion
The resurgence of investment and construction in the manufacturing sector has been one of the defining storylines of the economic recovery, pushing both into new industries and regions not historically home to the American industrial base. While still in its infancy, the post-Covid build-out—shaped in part by tight labor markets, supply chain disruptions abroad, economic and national security concerns, decarbonization goals, and new forms of activist industrial policy at the federal level—has the potential to eventually rearrange the geography of a vital sector of the American economy.
