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Supply Chain News: Go Southwest, Young Man-ufacturer

 

Sun Belt States Increasingly Destination for US Manufacturers

June 9, 2021
SCDigest Editorial Staff

Newspaper editor Horace Greeley is generally credited with utterinrg the phrase “Go West young man,” in 1865 or so as a recommendation for US youth to find fortune and adventure by migratating.

Now, US manufacturers, especially technology companies, are similarly headed westward here in the early 21st century, moving factories to the Sun Belt states of the Southwest at a brisk pace.

Supply Chain Digest Says...

High business taxes in California versus general tax breaks from many Sun Belt locations are part of the story. But so is the high cost of living in the Golden State.

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It’s easy to see why. Beyond the pleasant weather year round, Southwest states such as Texas, Oklahoma, New Mexico and Arizona (with a bit of Nevada thrown in) offer lots of open spaces and cheap land, low cost of living for workers, a plentiful and increasingly tech savvy workeforce, and usually generous state and local tax deals.

There’s lot of anecdotal evidence of the factory migration patterns.

According to the Wall Street Journal, giant chip maker Taiwan Semiconductor Manufacturing Co. selected Arizona for a new factory near Phoenix, a $12 billion facility that ranked as the single largest capital investment announced in the US last year. It will employ some 1600 workers.

In March, rival Intel said it would invest $20 billion to expand its manufacturing in Arizona and comitted to add 3,000 more jobs. The last month Intel said it would spend another $3.5 billion to expand its manufacturing operations in New Mexico and create another 700 jobs.

As announced in mid-2020, electric car company Tesla is in the process of soon opening a new assembly plant and battery factory in Texas – after expressing unhappiness in business conditions in its headquarters state of California.

Lucid Motors, an electric-vehicle start-up, will open a $700 million vehicle factory this year in Arizona.

Steel Dynamics of Fort Wayne, IN, is opening what will be the region’s largest mill in Sinton, Texas, this year, employing nearly 600 workers.

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But it’s not just stories like these fueling the idea of a major manufacturing trend.

The five states cited above created more than 100,000 manufacturing jobs from January 2017 to January 2020. That was 30% of overall job US growth in the period and three times the national growth rate, according to data from the Bureau of Labor Statistics, as compiled by the Wall Street Journal.

With global supply chain disruptions and other consideration generating some moves by companies to bring manufacturing back to the US, the Southwest is increasingly the answer to the question “where to?”

“If they are going to locate another facility, where does it need to be?” Eric Stavriotis, the head of location incentives for real estate firm CBRE Stavriotis told the Wall Street Journal, adding that. “The Southwest has won a lot of those analyses.”

Some of the Southwest’s manufacturing gain has come at California’s expense.

For example, in 2019, about 2,000 manufacturing workers in Texas and more than 1,300 in Arizona arrived from California, the most in 10 years, according to Census Bureau data. More than 2,700 manufacturing workers have come to Nevada from California in 2017 through 2019.

High business taxes in California versus general tax breaks from many Sun Belt locations are part of the story. But so is the high cost of living in the Golden State that can make it tough to find factory workers.

One possible barrier to continued manufacturing migration to the Southwest? Water.

The region has seen drought conditions for about 20 years. Researchers and local authorities say the growing demand for water could press the limits of the Colorado River basin and groundwater aquifers before too long.


What are your thouhts on the migration of manufacturing to the Southwest? Let us know your thoughts at the Feedback section below.

 

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