And the factory construction announcements continue.
By Wolf Richter for WOLF STREET.
This is amazing, and I’m not sure how long it will last, but spending on construction projects for manufacturing facilities in the US continues to spike in a historic manner. In September, $17.5 billion, up by about 150% from the stagnation range before the pandemic.
For the first nine months of 2023, spending on factory construction jumped to $140 billion, up by 131% from $60 billion in the same period in 2019 and $59 billion in 2021.
Since January 2021, roughly when this boom started, spending has nearly tripled. The rate of spending over the past five months exceeds $200 billion annualized (not seasonally adjusted).
Factory construction announcements continue. For example, just this week, German industrial giant Siemens announced that it will invest $510 million in the US to build factories: $150 million for a factory in Texas to manufacture electrical equipment for data centers; $220 million for a factory in North Carolina to manufacture passenger rail cars and offer overhauls of railcars and locomotives (Siemens diesel-electric locomotives are used by Amtrak, Brightline, and other passenger railroads); and $140 million for factories in Texas and California to manufacture electrical products.
Part was inflation, but construction costs have cooled. Over the 33 months since January 2021, the Producer Price Index for nonresidential construction has surged by 35%. Over the same period, spending on factory construction has spiked by 195%.
But the PPI has actually declined a little so far this year. And the huge year-over-year gains have been whittled down to just 3.8% by September.
And there are lot more dollars involved. Construction spending just covers the buildings. Companies invest in factories in the US to make high-value technologically advanced products such as semiconductors and vehicles. They use highly automated factories full of industrial robots. Then there is other investment activity to support the factory, including infrastructure construction. The whole package counts as investments in GDP. What’s even more important for the economy is what comes later when the factory starts producing, creating its own ecosystem of economic activity.
Industrial robots cost about the same in the US as in China. The cost of labor is still very different. And other costs are different. But on the plus side are shorter lead times, less transportation expense, less geopolitical uncertainty, more control over IP, etc.
Taxpayers are shanghaied into subsidizing factory construction at the local, state, and federal level, and this has been going on forever.
What is new is the disruption experienced by global supply chains – they practically all run through China – during the pandemic that led to shortages of all kinds. In addition, there are all kinds of frictions, disputes, uncertainties, and tariffs between the US and China. US manufacturers have to toe the line in China. Even Musk, a big defender of free speech, is mouse-quiet in China about free speech. His gigafactory in Shanghai is worth a lot more than free speech, that’s for sure.
What’s also new are huge federal subsidies for semiconductor manufacturing plants, EV battery plants, and EV assembly plants, and subsidies for purchases of EVs that conform to geographic production limitations. Makers of computer, electronic, and electrical equipment are also big drivers behind the surge of factory construction, according to an analysis by the Treasury Department.
But wait… the construction boom took off in the spring of 2021. Over a year later, in July 2022, Congresses passed a package of subsidies for select manufacturing industries, such as semiconductor makers (up to $52 billion). But construction spending doesn’t immediately happen when the law is passed. The government takes its time actually handing out the money. And these big construction projects themselves take a while time before construction can even start. So a portion of those subsidies for factory construction are likely to provide further fuel going forward.
By output, the US is the second largest manufacturing country behind China, and has a greater share of global production than the next three combined (Germany, Japan, and India). The majority of motor vehicles sold in the US are assembled in factories in the US. All major foreign brands have assembly plants in the US. Tesla makes vehicles in the US, including for export.
But the US, as the largest economy in the world, has fallen far behind China in manufacturing, while many sectors have become dependent on manufacturing in China. And issues during the pandemic, including the semiconductor shortages, were a brutal wakeup call.
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“But wait… the construction boom took off in the spring of 2021. Over a year later, in July 2022, Congresses passed a package of subsidies for select manufacturing industries, such as semiconductor makers (up to $52 billion).”
That’s the interesting part to me, very curious to understand the cause(s). I did assume until reading this very paragraph that the announced subsidies for high tech and green tech were the catalyst because I know in Europe there have been rumblings for a while about cost of business (energy costs ) and lower levels of subsidies on offer, both seducing manufacturers to potentially go stateside. However, if the growth in construction occurred prior to those events there must be some other cause(s).
In terms of European manufacturers setting up shop here — and this has been the case for years — the big plus is reliable cheap natural gas. But that’s mostly for energy-intensive production, such as steel, or for chemical companies that use natural gas as feedstock. I wonder what caused Siemens to build these factories. Being closer to your customers is a thing, especially with railcar production. But making electrical equipment for data centers? It seems you could manufacture that anywhere and ship.
So there are all kinds of big logical reasons behind these decisions, some of which we can guess.
Ah yes, the U.S. Government “subsidized” manufacturing plants in the U.S., along with legislation for infrastructure for the next ten years. Now for the naysayers to blame big government for forcing themselves on citizens. I recently drove from Illinois to Georgia and was a amazed at the amount of ongoing Interstate improvement in bridge’s, interchanges, and by-ways. I drove thru 4 major construction road areas just in Indiana, and more in Tennessee. Time to rebuild the U.S..
It may work out (more or less, time will tell) but it ain’t like gvt subsidies are a dead-certain, lead-pipe-cinch for consequence-less “success”.
For instance, there is a bridge in Alaska I’d like to sell you…
Much more recently, we’ll see how the CHIP act works out…the ramp up has taken long enough so that the precipitating, allegedly auto-inflating chip-crisis…has more or less passed (at last). It is not even crystal clear that the future subsidized chips are actually the ones involved in the chip crisis.
And…Will US surgical mask/infant formula production (to randomly pick a couple of products…) be rendered more reliable? Or CDC test quality control?
Maybe, maybe not.
Time, and another slug of printed dollars, will tell.
Historically, DC has been much, much, much better at spending than oversight.
That how you end up with $32 trillion in G debt from allegedly economy-stimulating (aka tax revenue increasing) “investments” over 50 years.
The interstates have always been under perpetual construction and reconstruction . They will always by virtue of their extensive nature be undergoing maintenence and/or improvement at all times.
It seems like a good time for the corporations to diversify their manufacturing capacity. Away from the formerly hospitable, desperate population that are getting too wealthy. And their military which was once a joke, became the epitome of their enemy.
There is an almost invisible change occurring in which America has suddenly become a hot property after 50 years of Fed financed disinvestment in manufacturing.
What I hope for the American way of life is that each company pays their employees like their target customer, who obviously has family level benefits.
The price for any stock is what one calculates what the company is worth by calculating the NPV of the cash inflows over the next 25 years. I think that sometimes, good business practices are worth more than near term greed. The good companies will reduce their margin to pay their workforce a family level wage and benefit package while not increasing the price too much.
It’s just flat out insane that after a huge giveaway to the rich and a trade war that bankrupted American farmers and caused us to pay more for everything from China … somehow despite all these real projects going on and great economic numbers somehow a lot of Americans are tricked into thinking Trump was better for the economy?!?! It’s just flat out insanity, our media is destroying us!
Citizen X, the framework behind Trump’s policies on China and US manufacturing is not actually not so different to Biden’s. There was always going to be instability in (trade and political) relations and economic costs to the transition. But it’s justified geoeconomically, not economically. It’s an ongoing shift more fundamental than D vs R. Yes, launched by Trump (maybe mostly for political rhetoric), but is taking hold generally because – in the circumstances – it makes sense.
And, in truth, only small minorities of either party’s politicians care more about what’s good for people than giveaways to the rich and themselves. Media is destroying us with this black-and-white thinking.
Texas and California light industry real estate may have gotten more expensive than it used to be, but it looks cheap from Munich, Siemens’ world HQ. Data processing hardware and electrical switchgear are mostly commoditized and low margin business now. Schneider (French) makes Square D switchgear in Mexico. US electrical manufacturers have largely been purchased by offshore interests or have left the market.
Railway car manufacturing and refurbishment seems little different than Airbus building their North American narrow-bodies in Mobile instead of Toulouse. Perhaps the value added tax is a factor. And exporting from the EU can be a regulatory money pit. An Irish inventor I met a decade ago lost his shirt trying to get his idea developed in the US due to the EU’s export requirements just to get his product out of Ireland. Maybe it’s cheaper to start from scratch here.
That $185 million Alabama gave to Airbus might be why Toulouse lost out.
Alabama tax payers are very generous to multi-billion dollar corporations.
I think what you said,
” Texas and California light industry real estate may have gotten more expensive than it used to be, but it looks cheap from Munich, Siemens’ world HQ.”,
Certainly naws at the kernel of what weird economic example the pending implosion of the housing bubble portends.
AL taxpayers and AL GUVMINT have figured out,,, Correctly IMHO, that subsidies to companies that actually MAKE STUFF are a very good investment.
When one of the largest global manufacturers of Stainless Steel, producing TONS of very high quality SS in a new facility in South America, (because it was not financially viable to put up with USA ecological mandates,) wanted a best place for their $$$4BB++ processing facility in USA, the AL politicians absolutely jumped on board to give them many preferences, including a training facility to teach the AL workers,,, and AFAIK today, both those facilities continue to put out the best SS, in our world, , and then process it in southern AL.
Don’t wonder at all why AB and others would locate in AL where the workers appreciate the work, and pretty much share the bennies in the whole area.
The Twin Cities light rail system uses Siemens S70 cars that were manufactured in Sacramento, California. Recently, a few additional S700 units, with a slightly different seating configuration, have been added too.
The original light rail cars for the Twin Cities were contracted from Bombardier, and manufactured in Mexico.
German engineered & Made In The USA seems like a much better choice!
Wolf, your father & grandfather were engineers who worked at Siemens, no?
Yes, both life-long engineers with Siemens (I never met my grandfather, so just stories).
I would LOVE to be a fly on the wall at Siemens discussions of these plant locations. Global conglomerates don’t make decisions by chance… they ALWAYS have a rationale. I just can’t figure out what it is in this case.
Only looking at pure economic rationales is where people miss lately. Geopolitics/geoeconomics is becoming more important given the international situation
All this obvious talk brings brings back the snarky “Senator Toyota” comments…pretty much from all quarters.
Corporations can crush US States like bugs, (They were HIGHLY mistrusted, as our leaders were aware we actually were revolting against English corps……they knew corps ran King George, and highly regulated them when we had a legal “clean slate” back in 1776) In 20-30 years time corps pretty much ran all the State’s…except the wealthier ones. So they moved….familiar?
With their WTO and many other organizations, the are about ready to set up Global Control, if they don’t have it already.
It’s probably to late even IF all the many aspects of this “money game” (by some miracle) gets fair rules and boundaries like any other “sporting” games humans most all humans enjoy.
The days of the “journeyman” in any “game” involving money are pretty much long gone.
Still think everyone should skim through “Player Piano” by Vonnegut.
Almost wish I was stupid enough to believe in a major religion, one of the most evil “money games” ever invented. No, cancel that, they are all smart enough to make suicide a mortal sin….Catch 22, eh?
Sorry for the bad mood.
“It seems you could manufacture that anywhere and ship.”
I work in low-margin/high-volume pharma packaging and can perhaps offer insight here. We occasionally face foreign threats and in every case they eventually immolate themselves.
Our margins are thin but our costs are mostly related to material and PP&E. While labor may be relatively expensive, it’s still just a small piece of our total spend.
Shipping costs are a significant factor and we talk a lot about site locations. However, infrastructure, regulation, and tax incentives play a heavy hand and often lead to some counter intuitive conclusions.
Regulatory compliance and regional standards are a huge factor made exponentially more difficult when working across international jurisdictions. This may be a factor if Siemens electrical equipment is going after government contracts or other high security applications. It’s difficult to overstate how granular this stuff can get, I once spent a year wrestling with an Australian company over shipping pallets.
Something too often overlooked is QA/QC which is largely driven by a commitment to culture. It’s very tempting for middle managers to look at something slightly out of spec, consider the bottom line and decide it’s ‘good enough’ and nine times out of ten they are probably right. However, the costs associated with being wrong are enormous.
After the product is packaged and shipped sunk costs are that much higher. Long lead times associated with low-cost container shipping delay the response and further compound the problem. Low cost, compact, light weight components ship just fine but then they need to be inspected, assembled, and inspected again in a controlled environment with multiple layers of audit and oversight that is easier to monitor closer to ‘home’.
Not surprised about Aussie pallet hassles. I have 5 (17 yr avg lifetime b/4 sale or trashed beyond repair) shipping containers and they have the absolute toughest anti-bug specs in their wooden floors, and it’s the Aussies’ tough specs that is world standard! (except for one-way much cheaper plywood floor containers.)
They DO NOT want ANY new bugs introduced in their ecosystem, as they have sorta weird critters there, anyway.
BTW good article….we can’t just “keep selling insurance to each other” as a fellow homeless drinking pal (medicinal, as one’s self respect goes FAST, as anyone who has ever been thru that shit knows!) told me during the 80’s double dip. Worse than the GFC, except we are a long way from being done with the fallout from that one, I am afraid.
Several metro transit systems purchased railcars from China over the past several years. The defects (electrical, spyware, software, defective chassis/suspension and trains that are not the right gauge to fit on tracks (safety)) are taking YEARS to fix. China (CRRC) used hidden subsidies to underbid Siemens, Hitachi, and Alstom on many of these multi-billion dollar projects.
I know this is general, but according to its November 3 press release, the Siemens’ CEO stated: “With this latest step, Siemens is delivering on its €2 billion global investment strategy for 2023 to boost growth, innovation and resilience.”
Presumably, “resilience” refers to supply chain balance. That this is only part of a 2 billion euro 2023 capital investment plan is also noteworthy, IMHO
Press release:
https://press.siemens.com/global/en/pressrelease/siemens-invest-more-us500-million-us-manufacturing-critical-infrastructure-2023
You had a reduction in the general corporate tax rate in 2017 from 35% to 21%, as well as additional rate reductions for manufacturing. That’s a reason for some businesses to put new production in the U.S., although you’d think they’d take a hard look at Mexico as well given the labor cost advantages.
Plus, who knows what state tax incentives are being offered in Texas, South Carolina, and other states. States like Texas are likely offering massive tax incentives.
Funny you should mention Mexico which is the number one importer to the US. The dangerous groups that make such decisions have plans for low cost Mexican labor supplying the US market under the protection of the most expensive protection racket in the world, the US military industrial complex.
While we worry, are they really ready to fight too the death against someone they probably would like under different circumstances.
“Mexico which is the number one importer to the US.”
Nonsense. That’s still China. BY FAR.
See my explanation and chart further down.
People misunderstand:
“Trading partner” = exports PLUS imports
and “trade balance” = exports MINUS imports.
Reshoring started with the pre-covid tariffs but was kicked into high gear with the shattering of supply chains during the covid lockdowns. A partial undoing of decades of offshoring. All in all, it had gone too far, so it’s a good thing; even better if it had been allowed to proceed organically without the subsidies.
One important point…”globalization” was really more “China-zation” – had the foreign exporters been much more diversified over the last 20 years, the US might not have had as much a…suboptimal… experience with “globalization”
China used its macro-economic policies to game the hell out of its WTO accession 20 years ago. Then DC was dead-at-the-switch for 20 years.
The broader the array of suppliers (foreign *and* domestic) the better off the US is.
Well, sort of. The trend to transfer the manufacturing sector offshore, was an economic decision by a captured regulator that had gradually become libertarian from their good fortune she had since those losers that came before.
Let’s hope we get our Manufacturing and related Engineering jobs back to the US where they belong.
The USCMA trade agreement entered into force July 1 2020 and the construction boom started one year later. USCMA changed the “rules of origin” for preferential tariff treatment in the U.S. It increased the de- minimis thresholds for non-originating content. Perhaps preferential tax treatment had some impact on foreign companies decisions to invest in the U.S.
“But the US, as the largest economy in the world, has fallen far behind China in manufacturing, while many sectors have become dependent on manufacturing in China. And issues during the pandemic, including the semiconductor shortages, were a brutal wakeup call.”
Generations too come will look back at American history and wonder why our corporations and US government mortgaged their futures, jobs, and security jumping in bed with a Communist country that hates America and its citizens guts. COVID pandemic open our eyes to how dependent Americans are on China. Outsourcing your national security, scrambling for something simple as a surgical mask, and toilet tissue. Last week I was told that the broccoli in my local Kroger comes from China, and I live in Colorado.
I don’t think any of Karl Marx’s proposed solutions to anything were right, but I do think he was astute in IDing problems. In regards to your question Marx pointed out that one thing that will always screw pure capitalists is that they ultimately will only be too happy to sell the noose to hang themselves with to their worst enimy as long as the price is right. That is what happened with China, the “price was right” as far as all the cheap labor and being able to shirk western regulations and so we effectively “sold them” our jobs, our productive capacity, our IP etc…
Thank you for expressing the exasperation that we all feel when the world refuses to move to where we think it should be.
Personally, I like broccoli. I buy it and eat it when it’s priced correctly otherwise I eat something else. It wouldn’t be the first time that I deviated from an approved diet.
Actually, the 6 mo of approved diet, pales in comparison to the decades that seem to have happened much faster than I remember.
Three GREAT COMMENTS and why I consider the “corporation” the most evil busy-ness instrument presently known to man……but unjailed, those types of people will just come up with even worse corporate privileges…..WRITTEN INTO LAW.
Rule of law is not all it’s cracked up to be….just another commodity you can buy if wealthy enough.
BTW, when I used to eat broccoli it came from Mexico (Corps did the same thing to their small farmers we did to ours).
I’ve been on an experimental, simple , cheap diet for over 5-7 years…copy European peasant roughly 500-1500 AD……..and one meal a day……so far so good.
China has good reason to hate us….almost the whole world does. All Europeans in general, in fact.
Not sure how to undo that one.
Send more missionaries?
(a very very sick joke…….it’s one of the major reasons they hate us….it also makes us a blind and sick country.)
Great data point. Thanks.
My experience is that China just isn’t that cheap anymore. Yes you can still get junk that is dirt cheap, but if you want decent quality and reliable supply, then the price advantages are quite low. Add in freight and management costs (either having to visit, or hire a representative there) and it’s just not an amazing deal anymore.
It’s been like this for a while now, but the main problem until the pandemic was that there was only a patchwork of local suppliers left. You might only be able to get half the stuff you need locally and the rest you have to get from China. Once you have to get a few things from China, you might as well just get everything done there as you have to visit anyway.
That is now changing and it is making manufacturing stuff much easier. I think it’s just a result of China getting richer/ageing, and we will see the last 20 years of outsourcing as an anomaly. There is talk that India will take it’s place, but I’m just not seeing it yet.
Also China uses money their businesses make to expand their military envelope.
So who wants half of every dollar to be turned into a harpoon missile aimed at our navy?
It’s common sense to either bring it all home or manufacture in places that could not make war or terrorize their neighbors.
“So who wants half of every dollar to be turned into a harpoon missile aimed at our navy?”
Great point.
“Made in China” will be a thing of the past if/when geopolitical tensions really heat up.
I’ve been thinking about this myself.
Fundamentally, that we make stuff halfway across the globe and then ship it here, vs just making the stuff here, seems like an arbitrige that will cease to be profitable once its been thoroughly exploited.
MM – the ore eventually degrades to exhaustion…
may we all find a better day.
Or replaced with another arbitrage from, say, India…
Whatever one likes to convince themselves what the turf looks like, is not valid if one were too deny that China is the gold star manufacturing center of the world.
In fact, China has become so important economically that it is flexing it’s muscles. Projecting Wolf’s figure of the asymptotic increase in dollars being spent on establishing a manufacturing presence in the US.
Companies, running from the uncertainty that an activist state Cjinese government, waking from a centuries long statis. Would they begin to tax the rentiers that resist taxes.
Glad to see us getting more vertical in our supply chain but am wondering how many long term jobs this surge will produce with all the automation.
This is great news!
I keep hoping that our southern neighbor, Mexico will get their house in order well enough so that they can reap more benefits from the China exodus. Overall Mexico is a good neighbor to us but could be so much more.
I haven’t kept up since but Mexico was the U S.’s biggest trading partner in Q1/23.
Yes, you are correct.
Mexico passed up China at the beginning of 2023. It’s funny we don’t hear more about this. Most Americans think Mexicans are farm workers and fast food workers, because that is what we see the most. But there is way more to Mexico than that. The Mexican economy is the 12th biggest in the world.
Mexico has edged out Canada which is #2. China is #3.
Wait a minute. The way you say that is BS. Mexico was the largest “trading partner” of US — that what this was.
“Trading partner” = exports PLUS imports (also called total bilateral trade)
Trade deficit = Exports MINUS imports.
The US still had huge trade deficit with Mexico.
When they publish these articles, you need to read all the way down, and at the bottom it says something like this: “Despite the rise, the U.S. still maintains a US $97 billion trade deficit with Mexico,…”
No one should ever report on “trading partner” metrics because they hide the trade deficit.
The Goods Trade Deficit, by Country.
https://wolfstreet.com/2023/02/08/the-us-trade-deficit-2022-imports-exports-of-goods-and-services-by-product-category-and-country/
Below are the 15 countries with which the US has the largest goods trade deficits. The opaque nature of international trade, such as trans-shipments through third countries, trade invoicing via third countries, etc., produces special effects, such as Ireland, which actually doesn’t export much to the US, but in which many huge US companies have entities – often just mailbox entities – through which winds the paper trail of their imports for all kinds of reasons. Vietnam has become a major transshipment center for China’s exports to the US to dodge US tariffs.
I was referencing a chart from the Federal Reserve Bank of Dallas.
The title is “Mexico becomes top U.S. trading partner at start of 2023”.
https://www.dallasfed.org/research/economics/2023/~/media/Images/research/economics/2023/0711/dfe0711c1.png
Harvey Mushman,
Yes, it says, “TRADING PARTNER,” = exports PLUS imports.
Trade balance = exports MINUS imports.
People need to wrap their heads around this weird concept of “trading partner.”
If find it interesting that Vietnam is #3.
I work with a customer who has a design center in Vietnam.
One of my customers went there and stayed at the luxurious Hanoi Hilton. Apparently much upgraded since the 1960’s since they were served Mai Tai’s by the pool.
Who won the Vietnam war and how did they do it?
No offense to Veterans a little older than me who gave their lives in this war.
MXN:USD has also come down a lot in the last couple decades, although the peso has strenghtened in the last couple years.
They call it trade with Mexico, but the Mexican companies involved are ultimately owned by US and European headquartered companies taking advantage of cheap Mexican labor to ship products into the US.
Look at all the Mexican companies owned by US auto subsidiaries. The same happens in every industry.
The Mexican government gets some tax revenue from it, which might help it over time, but US manufacturing has largely suffered as a result.
Our little truck equipment business has been fighting Made-in-Mexico for years now. A whole lot of trucks and truck parts used to be made here in the Midwest USA. A whole lot still are, but NAFTA changed the game.
Since the mid-90’s, the competitors in our space that moved south of the border have been sopping up market share from the rest of us. My napkin math puts their cost advantage at about 10%, all else equal. In an industry that “enjoys” single digit net margins, it makes a big difference.
Two things give me hope that the worst of this struggle is behind us. One is robotics which help level the playing field by shrinking the man-hours required to build a product… thus reducing their labor cost advantage. We are pushing hard to redesign with robotics in mind. Tighter tolerances are required to robot weld, so they need to be a consideration early in the design process.
The other possible positive sign is the wave of manufacturers taking advantage of that labor cost arbitrage. More demand for the labor means driving up their standard of living and thus their wages. I have heard rumors that the labor market has seriously tightened in some manufacturing centers in Mexico.
We’ve tried to tout “made in the USA” for a long time, but price always wins in the long run. Perot was spot-on about the “giant sucking sound”. It was very loud in our world for a while.
Our southern neighbor is the last one who will be in charge of anything more than a bought off police force,
The rule of law will be enforced by the corporations that are establishing a low cost foot print in Mexico.
This is very interesting in light of all the commercial real estate space that is currently vacant IN ADDITION to all these empty distribution centers that have recently been built and remain empty.
Is this pure optimism or just commercial builders doing what they do?
You misunderstand factory construction. Factories are not built by some developer who then tries to lease it to a manufacturer (unlike office or warehouse construction). Factories are built by the manufacturer with plans in place to manufacture products at this factory. All the big manufacturers own their own plants. Intel owns its own plants, GM owns its own plants, Tesla is a well-known example. The semiconductor plants being built now are being built by the chipmakers. They know what they’re going to manufacture at these plants. In the article, I cited the announcement by Siemens to build factories in the US — its own factories. Check out that paragraph; it announced what they’re going to manufacture at these factories.
Wolf-
Just curious… I’ve invested in a multi-year buildout of a series of light industrial warehouses on a single lot in Southeast Wisconsin. These are generally anticipated to be logistics facilities for product distribution.
One of the buildings will now include built out infrastructure for injection-moulding equipment. The space will be leased and the extra infrastructure wrapped into the price of the long-term lease.
Does this type of building — built by a developer, but for long term manufacturer use — show up in factory construction (which I doubt based on your comment above to WB), and, if not, where does it get counted?
Thanks
As it got permitted, designed, and built as a warehouse/fulfillment center, that’s what it was in terms of construction spending.
There are specific categories in the Census construction spending data. Warehouses and similar count as “commercial” not “manufacturing.” “Commercial” is a broad category that includes warehouses, fulfillment centers, malls, supermarkets, auto dealers, auto repair operations… whatever you put in them. If it’s getting built as a warehouse and someone sticks light manufacturing or fabrication into it, it’s still in the “commercial” category.
Some warehouses in some locations are now sitting empty because of overbuilding, and you will see all kinds of unintended uses for them, as landlords try to fill them with whatever, from tennis clubs to light manufacturing. They’ll put startup into them. They’ll put anything into them to generate rents. What a landlord uses the warehouse for is irrelevant for construction spending.
Your example is kind of a goofy exception (at least it seems to me since I don’t know the details). They’re spending money on injection molding equipment without having a manufacturer tied up? So who is the manufacturer? The landlord? Doesn’t make sense, but desperate landlords have done weirder things. Wouldn’t surprise me if it eventually counts as “default.”
This is the Census definition of “Manufacturing”: “Includes all buildings and structures at manufacturing sites. Office buildings and warehouses owned by manufacturing companies but not constructed at a manufacturing site are classified as “office” and “commercial” respectively.”
Makes sense, provided that the demand (i.e. customer) is still there…
Many are simply struggling to cover living expenses. At least that is the general sense I get from my (non-student) tenants.
I’ve spoken w people near the inner circle (of our little tiny corner of a state) that the appropriated money has only just barely begun to hit the street. But I imagine if that’s the case here, it’s probably the same in at least some other states.
Just a guess but USA continues to build more LNG capacity for export as well. I would assume that LNG plants as they are built are considered manufacturing facilities. But that too has been ongoing for years as well so would not account for the surge. The surge occurred during the pandemic when we had ZIRP so that may have had some influence . As you say these facilities take years to plan and get funding but yet something large was approved .
Your excellent sector employment review noted that Construction finally regained the jobs lost more than a decade ago during the Great Recession. If the current growth spurt is pandemic/supply chain related Construction growth, how do you expect the CHiPs and IRA subsidies to affect this trajectory and which sectors are most likely to lose workers if the Construction numbers continue to expand?
Well, rather than celebrate the recovery from a huge loss, let’s celebrate the Fed’s myotoshi moves the saved the financial criminals from losing a dime. Even their losses were made whole.
The current activity in the construction index is hardly the result of the machinations of every day people. Much more likely the result of a bid or ask that will increase the price of any given stock.
A rise in N-gDp has a stimulating effect on business profit expectations.
Acting under the impulse that wider profit margins are in the offing, businesses will go into debt, hire workers, buy additional inventory, expand their rate of operations, and if their optimistic anticipations cover a long enough period, decide to expand their plant capacity, and develop new outlets for their products.
“The real economy cannot be brought into equilibrium by adjusting prices. And indeed, the real economy is never in equilibrium.” – Dr. Philip George
What’s R * now?
Pent up demand from COVID; inflation of everything is icing on the cake.
I realize that robotics and AI will be used but once all this construction is completed you have to imagine that a great amount of hiring to staff the buildings will occur. For example the huge Columbus, Oh Fab is under construction and is scheduled for a 2025 completion. Lots of bodies needed in 2025.
Politically it could be that companies are starting to understand the 1. The trump tariffs (Biden has kept them)are still in place and could be enhanced if he gets reelected 2. Reliability is important 3. Cost of transportation will only increase 4. The dollar might weaken if and when rates ever stop going up 5. As opposed to Europe, plenty of labor in the US due to the immigration, illegal or not 6. US still has a plentiful amount of raw materials 7. If you’re worried about instability the US is the place to be.
I wouldn’t be looking for a huge bump in employment ( over what it is now during construction) at the Intel Fab in Ohio. These fabs are not auto-factories. Most of the processes and handling of material and chips is fully automated and not due to labor savings, but because humans ( even in bunny suits) are too dirty to be in the level 5 clean rooms where all the serious work takes place. Employment will peak just before they open due to the massive amount of low skill labor it takes to clean from the construction phase to level 5. In many cases this multi-stage cleaning process can take 6 months or more . After that most of the employment is engineers, who manage the process on each tool, and outside applications engineers who are on-site nearly full time from the tool vendors such as AMD and Lam. The bulk of local long term jobs will be in service vendors to Intel such as the places that do the specialized laundry and precleaning of all materials and supplies before they enter the fab.
A bit of politics for sure, with the possible highlights. Not one term of a President or Congress, in terms of sustainable growth, will change it.
I understand…….Intel states that the direct employment for the first buildings completed will be 3000…….at an average wage of $135,000 per year. Not a national shaker but a local injection that is massive.
All the rage in businesses in 2020 and 2021 were discussions of “friend-shoring”, the backlog at the ports, China tariffs. That is why the 2021 boom started before the subsidies.
I agree…..I forgot to mention……and this is not meant politically……the tariffs with a lag of 18 months probably contributed to the inflationary storm. No direct proof of that statement….but economics says they should have……..and another hit……Powell should have known that.
The “subsides” co-exist with private enterprise, in nearly all cases. The subsides are planned funding for 10 years, unless Congress cries ” We can’t afford it, we are bankrupt”. The first infrastructure bill in decades also is a 10 year plan, totalling 1 trillion dollars.
My guess for semiconductors is that since Taiwan makes 60% of worlds semiconductors and 90% of the most advanced ones that is a factor as well. Clearly some irony here.
Arguably the most strategic asset on earth, Taiwan…
Financialization of the American Economy, suppressed interest rates, and money/credit creation helped those who don’t get their hands dirty. Those who flip paper and promises gained, huge.
But on the ground where things get done, the picture has been more than 2 decades of decline.
Example. Of the 35 full-time jobs we once had at our manufacturing business, we are now down to 3. The Feds free money program for the big, has turned our industry into an Oligopoly on the supply side.
A detail on sourcing “Made in the USA”. We broke a shaft (built to U.S. SAE/AISI standards) which is no longer built anywhere in North America. Chinese steel is KRAP (ask any machinist). So we finally had to pull apart another machine to rob the shaft.
So, yes, manufacturing of computer baubles and trinkets may be on the rise, but U.S. quality is long, long gone.
Sounds like your business is in deep deep trouble. That’s a business-specific issue. Lots of businesses fail all the time, for whatever reasons, during booms and busts. And that’s OK, it’s part of business.
But if you’re extrapolating from your own business — which collapsed from 35 employees to 3 employees — to the rest of the country, you’re going to get BS conclusions about the rest of the country.
The story of the shaft made me shudder. That’s the signature of a fly-by-night operation. Clearly there are some company-specific problems there. And a lot of bitterness.
Sorry Wolf:
The whole industry has shrunk from Cental Bank/Government money creating a Monopoly/Oligopoly. And that is not unique to this business.
Controlling markets through consolidation (via cheap money to the few) is an age old strategy to increase prices.
Me? I have survived. A hundred others were auctioned off. And I have Zero interest in helping Government taxation.
We will see whether the Paper Empire lasts much longer.
Bay Bridge corroded rods were also (brand new) Chinese steel. That was a huge fiasco.
BS. The bolts were made Dyson Corp. in Ohio. They’re supposed to secure seismic equipment on the eastern suspension span.
The tower was made in China, and there are no problems with the tower.
You’re abusing my site to spread BS!
This article says the rods were bad:
https://www.wired.com/2015/06/mystery-brand-new-bay-bridges-corroded-steel/
Jeeesus, read the article you linked. This is what your article says:
“Below the roads, each pile is capped with seismic safety features called shear keys and bearings. When an earthquake hits, the keys and bearings let the bridge sway with the rolling earth, while anchor rods—massive, threaded steel shafts up to 24 feet long and two to three inches thick—keep it from bucking off completely.
It’s the rods in the eastern suspension pile that corroded, snapping in half during pre-opening tests. Maroney and the bridge’s governing council decided to proceed with the opening (even with the faulty bolts, the new bridge was more seismically safe than the old) and continue testing to pinpoint the precise circumstances for the rods’ failure.”
It’s those rods (they’re actually giant bolts) that were made by Dyson Corp.
The bridge tower, made in China, is fine.
…national attitudes towards QA are where you find them (…or don’t)…
may we all find a better day.
Wolf,
Sorry. You’re right. I stand corrected. I was under the impression that the bolts and rods were two sepate items that had failed, but they refer to the same item.
1 hr to come up with that? Even to the point of claiming below 4th grade reading ability? Damn!
The national (whatever) “attitude” runs VERY deep in this one.
Thanks Wolf,
Wolf, if this is too far over the edge delete it without thought.
I am quite encouraged by what I see as the emerging U.S. and Western industrial policy.
I guess this is just the start of a growing two (2) supply chain world and an eventual worldwide belief as to how best to organize our ever shrinking world.
Hopefully the supply chains will overlap quite a bit in non strategic areas and we can keep the economic competition from becoming overtly violent.
I am confident that democratic/capitalistic chaos is the worst form of goverment there is except for all of the rest. (credit to Churchill)
Feels to me that the policy is not driven by anything other than concerns about supply chains due to the US continually needing to be in conflict with China and others.
Curious as to what you see as the new industrial policy as I see it in some areas like the CHIPS act as simply being a form of state capitalism. After all, if the best place to manufacture something from a capitalist perspective was the US then we wouldn’t need laws and tax payer money funding it.
I agree with state capitalism in many areas but certainly not in areas like semiconductors. Health care and energy might be two areas I could see it with but of course won’t happen.
I always thought there were three great examples of how messed up an industry can become through subsidization and central planning:
– Healthcare, where most customers don’t even know how much the product costs before they purchase it.
– Education, where the eighth grade math proficiency target (at least in my local K-12 school district) is 60%, and the administrators pat themselves on the back for achievement of goal.
– Banking, which uses interest rate manipulation to goose employment; then, when inflation inevitably follows, reverses course til “something breaks; and so on to infinity.
Subsidization and central economic planning, for all of the good intentions (and sometimes bad), leads to bad endings, IMO.
Health care is a tricky one especially given so many models of where it is done 10x cheaper with equal health outcomes. I am mainly against for profit industries in these areas. I recognize especially in our country central planning just leads to massive bureaucracy versus people actually providing the service. Education seems to be similar with bloated district and state offices but not enough teachers and other resources, not to mention the mandated curriculum.
Makes sense to me, other than limiting it to only 2 supply chains.
But effectiveness of all supply chains (ref 2nd to last paragraph) WILL be based on net wealth……it is already.
Which makes ultra high end brick and mortar smash and grab VERY lucrative. Get your Gucci from Amazon? Well, bye bye ass to lovely kissing “experience”…..except on islands or maybe gated shopping centers.
Another thought: Connector Economies
A Bloomberg article suggested these 5 countries as benefitting from being ‘connector economies’.
“Vietnam, Poland, Mexico, Morocco and Indonesia are benefiting from the reshuffling of supply chains in response to US-China tensions.”
Thomas…..great statement……,particularly Mexico and Morocco where our military can keep a watchful eye and they are somewhat out of the way of instability. Not much shipping cost for Mexico. China appears to be on the way out which should be somewhat inflationary. I wonder if Brazil will get a boost. They appear to be developing into a world nation……corn production skyrocketing. Hydro power. etc etc.
I remember the .com era where businesses and data centers were being built in masses. Turned out many of those businesses were insignificant or fake and huge sums of money were being thrown at hardware to make business models even larger so even more money could be borrowed. Loose lending played a major role in the excess.
Today, construction reminds me of that time. Large developments take years to execute and free (at the time) money has been leveraged. Most builders will work to completion, hoping the environment changes and there is some sort of increased demand.
Future revenue tied to hope.
I worked at Intel during the time and while they did try to be a player in the data server space much of the investment they made during that era was to simply push the .com era and drive the need for servers and thus processors. They had no issue that lots of seed money in various ventures went for naught. Admittedly they didn’t see the sub $1000 PC and while they knew they needed a next iteration of technology they were not Apple so missed the RISC/ARM bus although some recent news on this space around fabrication agreements
Looking at factory construction by $$ Can be a bit deceiving. The construction costs and equipment costs for high end chip fabs is so great that it can wash out the amount of construction in non-chip factories. For instance the Siemens factory in Texas is $150 million while just the measly expansion of Intels D1X fab in Hillsboro ( Mod4) is estimated to be $5 billion, but it is probably a much lower footprint and will result in fewer new jobs than the Texas Plant.
Read the article further down (RTGDFA before you post nonsense). The part about the PPI for nonresidential construction, including chart. PPI was flat/down ALL year. From the article: The spike in prices occurred in 2021 and 2022. Since Jan 2021: nonresidential construction costs up 35%, factory construction up 195%.
Hope this isn’t the plan, but up in 1995 all Postal Automation machinery (A LOT!!!!!!) was built in Arlington TX under license from AEG Telefunken.
My OCR instructor’s kid worked there, and he said a lot of it was PIECEWORK….many repetitive modules parts/wiring/soldering, etc.
We had lots of cold solder joints that took a couple years to show up….many were intermittent!!!!!!! BAD SCENE!
Next it’s pharmaceutical feedstocks that need to be brought onshore
Yes, if my knowledge serves me right, during the pandemic, it was noted that some 90% of pharmacutical drugs are imported. Outsourcing patented or generic drugs must be protected by Law in those Country’s?
Puerto Rico used to be a huge pharmaceutical hub for the US a decade ago. I think it has waned since then, though. Do Puerto Rico products count as “imports” to the US?
Its unusual to see good news on an economics site !!!
The US is now the safest place on the planet to build manufacturing plants. Europe is threatened by Russia, and a large non-European immigrant population. Russia took itself out of the picture with its attack on Ukraine. China has increasing problems, geo-political and economic. Southeast Asia is threatened by China. If I was going to build a manufacturing plant now, I would only consider the US. Five years ago I might have thought about Europe, China, Southeast Asia, even Russia. The world has changed a lot since then.
Parts of Southeast Asia are difficult because of skilled labor shortages and cost of electricity. Viet Nam a big exception but not great for Cambodia and unfortunate as they have 65% of the population is under 30. China is a significant player but limited to low end apparel and similar. My read isn’t that there is a threat from China as China has the influence in much of Southeast Asia. Places like Cambodia are happy to take both sides money but that dates back to cold war days. Obviously Southeast Asia is very diverse but I mention it as it was where I lived and worked the longest in that part of the world.
Interesting thoughts William.
Might more labor and lower tech intensive industries be located safely in Mexico?
Ever been to Mexico? The US is a nation based on law. I am not sure one could say the same of any country in Central or South America.
Which aspect of law? Certainly navigating the labor unions, political and regulatory frameworks present some valid risks. In addition, crime is higher so security is concern as well as corruption, delays at border and so on. Most of those can be navigated and those that can’t simply becomes a risk/reward proposition. To me is doesn’t seem like this has changed all that much. Mexico does have a solid labor force, trade agreements, protection of IP and close to US. More important is likely the overall supply chain as if many of the components comes from China you haven’t mitigated the risk. Obviously extremely costly to relocate manufacturing as well.
Just the Mexican border towns which are generally quite safe to visit, to see dentists and optometrists. Dental work is about 1/3 and I haven’t noticed a difference in quality.
Also some Mexican Restaurants are very nice and affordable. South of Deming NM in Palomas Mexico is a regionally famous Mexican restaurant called ‘The Pink Store’. Your first Margarita is free.
Wolf: The cost of labor is still very different. And other costs are different.
Question: What other cost are you referring too, and how are they different ?
Constructions costs of factories in China, environmental rules that make everything more expensive in the US but are lacking in China, transportation costs within China, lots of stuff.
Last month driving down to my winter quarters in Mexico at one toll both on the customer going north there was a mile or more backup of trucks headed north. It’s just a steady stream of trucks headed to the U S.
Yes, I am from the Southwest and that freight has been building for years. I believe Mexican drivers are allowed to come into the U.S. though I think there are restrictions on distance and time to protect U.S. freight companies. El Paso / Juarez has gone through enormous growth.
Decoupling from reliance on China. It will take some time.
A good sign.
Wait. Taylor Swift concerts don’t count as manufacturing …. do they?
The enormous problem going on distorting everything in the US is the massive $2 trillion a year deficit spending. This increase in certain manufacturing facilities is a SYMPTOM of that huge problem and not some sort of possibly promising panacea to that problem. The US economy needs to shrink considerably including in areas of factory spending.
Factory spending is also enhanced by the corp tax cuts of 2017, another component of the $2 trillion deficit. But long term, maybe the economic growth that comes out of it pays off. It’s all a giant balloon, push one side in, another side bulges out.
What did buybacks PRODUCE?
Yachts and jets and lots of high fashion……mostly made overseas, at that.
I thought Will Rodgers debunked all that CRAPP!
This is truly the crux of the biscuit. Every inflationary efa that crashed in modern times had a period of malinvestment in manufacturing or agriculture or both. The thinking being that prices will continue to rise, so investment in more supply is a no-brainer, followed by prices not continuing to rise. Some of this has to do with USMCA, for better or worse, so it may not be as bubbly as it seems. My sense it’s its a huge auto and housing bubble though. A feature of ZIRP. It will go down in history as the policy blunder that blew the biggest economic bubble in history.
I spoke with my CPA last week about building another factory with cash. He came up with a plan and showed me the way. Tentatively, this time next year is when we will break ground.
I think at least one of the reasons is the populist de-globalization trends going around the world. The second is the awakening of the vulnerability that global supply chains can be disrupted during the pandemic. Third is the increasing tension in the international politics including relations with Russia, China and Middle-East.
All these reasons are urging the govt and the industry to take the manufacturing back to the homeland. This might affect some people (blue collar workers) positively, and others (consumers) negatively.
Wolf, is there a possibility of “drunken spending” spree you’ve noted, particularly consumer, slowing just as these new factories are coming on line?
Seems like we saw office buildings completed just as work from home gained its share.
Are a lot of these trends timing issues, one trying to match the other?
Thanks for all your detailed work on these subjects.
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I am not sure that either the engineering schools nor the management schools are ready for this kind of challenge. The US Universities have legions of paper pushing non-experienced engineers and managers teaching a generation that needs to start an industrial re-evolution. I guess they will have to learn it the hard way, by trial and error. The realestate market nor the health insurance cost will not be helping them either. It iwill take a lot of effort to get of the easy sleazy print money and back on track…
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This is all great. However, in order for our manufacturing jobs growth to be sustainable, we need to control and lower the exorbitant cost of healthcare in the U.S. Our sky-high health insurance and healthcare costs put a great burden on both the employers and employees, and as a result put American manufactured goods at a great cost disadvantage vs. the competition. Without controlling and lowering our healthcare costs, our manufacturing will forever be at a cost disadvantage and we simply won’t be able to restore our industrial base and bring back its past glory.
Anyone who understands what the 4th Industrial Revolution is should understand exactly what’s being built here;
I’ve seen it stated more than once that all of this construction is subsidized by the taxpayers of this country; “Public Private Partnerships”; AKA Industries that will be controlled by the Government (See Centrally Planned Economy); Central planning is commonly associated with socialist or communist forms of government.
Back to the Notation of the 4th Industrial Revolution; Job creation will be short lived as the majority of the workers required to get this new iteration of industry up and running will be very short lived as these workers will be displaced by Robotics and AI.
And what will power the AI and Robots? Well at this rate, LOTS of fossil fuel.
The planet will be polluted and almost uninhabitable for man even faster, and the climate change deniers will finally see it.
But the ones who plan to live forever in bliss won’t care one bit….might even start a Holy War to speed things up…..already playing with that solution.
A helpful hint to all those who play that old game;……South Park said the Mormon’s Prophet had it right. Beats flipping a coin when your eternal soul is at stake?
And what will power the AI and Robots? Well at this rate, LOTS of fossil fuel.
The planet will be polluted and almost uninhabitable for man even faster, and the climate change deniers will finally see it.
But the ones who plan to live forever in bliss won’t care one bit….might even start a Holy War to speed things up…..already playing with that solution.
A helpful hint to all those who play that old game;……South Park said the Mormon’s Prophet had it right. Beats flipping a coin when your eternal soul is at stake?
I did NOT do that, but it’s worth repeating.