The US is building factories at a wildly fast rate

insider:   Last year, production at American factories increased — and so did the production of factories themselves.

According to data from the Census Bureau released last week, construction spending by US manufacturers more than doubled over the past year. For April 2023, the annual rate reached nearly $190 billion compared with $90 billion in June 2022, with manufacturing accounting for around 13% of non-government construction.

The US government has offered billions of dollars in subsidies for the production of electric vehicles and solar panels to compete with countries such as China and to fortify US leadership in sectors including clean energy. According to the World Bank, China makes up around 30% of global value added from manufacturing, about double the US. Over the last few decades, Asia has taken up a greater share of global factory manufacturing.

Factories are being constructed everywhere from deserts to resort towns as the US tries to bring back manufacturing of goods commonly imported from lower-cost countries. Many battery and electric vehicle factories have popped up in the Rust Belt, while solar panel and renewable energy factories now span much of the South and Southeast.

The US has added around 800,000 jobs in manufacturing employment over the last two years, employing around 13 million workers per the May Bureau of Labor Statistics jobs report. However, according to the National Association of Manufacturers, the manufacturing skills gap — caused by the labor market's struggle to find workers with highly technical and manual expertise — could lead to 2.1 million unfilled jobs by 2030.

Manufacturing, though, has accelerated its move back to the US from other countries over the past year. According to Kearney's 2022 Reshoring Index, 96% of American companies have shifted production to the US or are evaluating reshoring operations — a spike from 78% in the 2021 index.

The sudden rise in factory construction corresponds with passage of the CHIPS and Science Act in July 2022, which provided $280 billion in funding to boost manufacturing of semiconductors, as well as the Inflation Reduction Act in August 2022. The IRA has sought to create new jobs in manufacturing, construction, and renewable energy, estimated to create up to 1.5 million jobs by 2030.

Construction spending in most areas of the US economy has fallen in contrast, including office, health care, and educational construction. Residential construction has also declined amid a big cooldown from the pandemic housing market boom.

Census Bureau data reveals manufacturing construction spending has escalated from January 2020 until April 2023 in every region except New England and the Mid Atlantic.

While the spending boom could lead in turn to a future manufacturing boom, the new factories need to actually get built first. Much of this spending may go toward legal setbacks or delays from the National Environmental Policy Act, requiring projects with federal involvement to conduct environmental impact reviews.

Some Chinese companies have recently moved supply chains out of the country, following in the footsteps of some Western countries following the 2018 trade war with China. Tensions with the US and rising costs have pushed some Chinese companies to look to India, Thailand, and Vietnam for manufacturing.