30-Year Construction Trends Part 2: The Fall & Rise of American Manufacturing

Reshored Supply Chains Need Homes, Too

This post is the second of a three-part (at least) series that uses construction spending data to look at how and why the industry has changed over the past thirty years. Part 1 (free for all subscribers) was about the decline of retail-related construction, and part 3 will look at state level construction spending trends.

For much of the past three decades, the mantra among American manufacturers has been, “to maximize profit, I must minimize cost, and that means China (or Mexico, or Vietnam, etc.).” This had everything to do with lower labor costs, less intense regulatory environments, and the investments other nations were willing to make to support multinational manufacturers.

While American workers continue to be more expensive than the lion’s share of production workers around the world, other considerations—like supply chain disruptions during the Great Recession and the pandemic—have intervened.

CEOs have accordingly sought to:

1. simplify their logistics, including by bringing production closer to final consumers.

2. protect intellectual property.

3. avoid entering involuntary joint partnerships.

4. take advantage of favorable tariff treatment back home, including under the auspices of the USMCA trade agreement.

Recent federal legislation has also been a factor. The CHIPS Act and the Inflation Reduction Act (both signed in August 2022) provided billions in domestic industrial capacity incentives.

Accordingly, U.S. supply chains are thickening, and this is a process that could last for decades. It took decades to move American production offshore; it will take decades to bring it back.

Not coincidentally, construction related to manufacturing activity has surged, rising more than 160% from May 2021 to September 2023. Roughly $3 in every $10 spent on private nonresidential construction now goes toward building factories. Why?