The Construction Spending on U.S. Manufacturing Plants soars. Will this de-globalize supply chains?

According to Census Bureau figures, the amount spent in May on manufacturing plants in the US increased by 73% compared to May of last year, and by 147% compared to May 2021. The total was $15.7 billion. The increase in construction costs is far greater than this.

In the six-year period between 2015 and 2010, construction expenditures on factories stagnated between $6 billion to $7 billion per month. In the spring of 2020, however, the spending started to increase, then increased dramatically amid the chaos in the global supply chains at that time. Computer, electronic and electrical manufacturing is the main driver of the construction spending boom.

The long-term outlook that construction spending provides for the US manufacturing industry is very interesting, especially in terms of computer, electronic and electrical manufacturing.

Spending on nonresidential construction rose by 26% in May compared to two years ago and 17% over the past year. This was largely due to rising construction costs.

In addition to factories, nonresidential construction includes: lodgings, offices, commercials, healthcare, education and religious institutions, public safety and amusement and recreation, transportations, communication, electricity, highways and streets, sewage, waste disposal and water supply.

The nonresidential construction expenditure is highly seasonal, with a low point in January and a peak in the summer months (green line). The red line represents the 12-month moving median, which smooths out seasonality.

Multifamily construction starts spiked to highest since 1986; single-family starts bounce.

In the nonresidential sector, manufacturing has increased from 8.9% to 17.5% over the last two years. We can eliminate the effect of rising construction costs by looking at the percentage shares:

According to a analysis conducted by the Treasury Department in June, computer, electronic and electrical manufacturing factories are the main drivers of the construction boom.

In the last few decades, these types of factories were a relatively minor component of factory construction. According to Treasury analysis, these plants now dominate the construction of factories.

According to a Treasury Department report last month, the “real” construction spending for plants in the computer, electronic, and electrical manufacturing industries has almost quadrupled when adjusted for inflation.

Early 2021 saw a boom in construction projects in the manufacturing sector. This was likely a response to supply-chain chaos during the pandemic and transportation nightmares, which impacted globalized supply strategies.

The CHIPS Act, which was passed in August of 2022, is believed to have accelerated the construction and expansion of manufacturing facilities for tech products.

The Treasury Department stated that, compared with other advanced economies, the construction boom of manufacturing plants is a US phenomenon.

• “Japan’s floor area for new manufacturing has increased over the last year but is still below the pre-pandemic level.
• The real construction expenditure in Germany on new factory and workshop building has been relatively stable for the last decade.
• The United Kingdom and Australia saw significant increases in industrial construction in 2022. These were up by about 40% from the levels of 2021. These series have remained flat since then, despite the fact that U.S. manufacturing has almost doubled in size.

The investment boom in US factories has been a welcomed turn of events, as “real” manufacturing production – adjusted for increases in prices – had been flat for the past 17 years. This was due to rampant offshoring by US companies and globalization of their supply chains, which led them into chaos in 2020-2021.

Original

Editor’s Note: Seeking Alpha editors selected the summary bullets in this article.