In April, SCDigest reported that for all talk about reshoring of production back to US soil, it has never shown up in the numbers, leading to the conclusion that reshoring was more anecdotal than a real trend. (See orginal story below.)
Supply Chain Digest Says...
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 It shows that construction of manufacturing facilities rose 1% in May from April, with a strong increase of 76.3% from a year earlier. |
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However, we also noted there was one reshoring-related trend that was apparent in the numbers, and that is the pace of factory construction in the US recently.
Spurred on by two pieces of legislation that provide billions of dollars in government investment funding, companies are taking advantage of the opportunity.
The CHIPS and Science Act offers incentives for investing in semiconductor production, while the Inflation Reduction Act (IRA) includes incentives for items such as the production of electric vehicles and using domestically produced content. Both were signed into law in August of 2022.
The Wall Street Journal recently reported that economists at Goldman Sachs believe that the uptake in these incentives appears to be surpassing earlier estimates.
And here the chart does tells the story. It shows that construction of manufacturing facilities rose 1% in May from April, with a strong increase of 76.3% from a year earlier.
In Q1, Commerce Department data says that spending on factories represented almost 0.5% of gross domestic product, the highest percentage since 1991. That percentage is expected to be even higher in Q2.
Will this surge in US factory construction continue once the government funding dries up?
Source: Wall Street Journal
That is the trillion dollar question, but it seems certain the pace would fall.
Original Story
April 11, 2023
Is Reshoring Manufacturing Finally Starting to be a Real Trend?
Factory Construction Set New Record in 2022, but will it Stick?
As SCDigest has written many times, for all the talk about “reshoring” of manufacturing activity back to US soil, it just hasn’t showed up in the numbers in terms of domestic manufacturing output. The stories have been more anecdotal than factual.
But that may at last be changing by looking at a different set of numbers: the amount of new US factory construction.
According to an article over the weekend in the Wall Steet Journal, construction spending related to manufacturing reached $108 billion in 2022, Census Bureau data show, the highest annual total ever.
The article notes much of that growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, funded in part by billions of dollars in government incentives.
But it’s not only subsidy driven expansion.
“Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home,” the Journal notes.
Even one sock company, FutureStitch, has opened a new factory in Oceanside, Calif, adding to offshore plants China and Turkey, in a sector that almost completely fled US production decades ago.
The driver for the move: much shorted cycle times, and the responsiveness to demand that speed brings with it. The US production helps as retailers are reducing inventory in their stores, and now FutureStitch allows the company to quickly replenish those retail distribution centers.
US production capacity has been flat for many years. However, the Journal article notes that last year it showed its strongest growth since 2015, as companies appear to be serious about reducing supply risk and avoiding the many supply chain disruptions seen since the start of the pandemic in 2020.
And even though much more automated factories require a lot less labor than in the past, the US Bureau of Labor Statistics says that nearly 800,000 manufacturing jobs were added in the sector over the past two years, to about 13 million total. That kept the percent of production jobs at about 10% of total employment.
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 And there are about another 800,000 jobs openings that manufacturers are looking to fill, as some worry the worker shortage could derail the reshoring momentum.
Even toy maker Lego is jumping on the band wagon. It is building its first US plant near Richmond, Va, after years of supplying the US from Mexico, also to improve responsiveness.
But there are also examples of how such a US production strategy may not work out. For example, athletic shoemaker adidas opened a highly automated factory near Atlanta in 2017. Two years later, adidas shuttered the facility, moving production to China and Vietnam.
So this time will reshoring really stick? The factory construction numbers look promising for sure, but let’s wait for the numbers on output.
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