Construction Spending on US Manufacturing Plants Soars, to De-Globalize Supply Chains?

The amount spent on building manufacturing plants in May in the US jumped by 73% from a year ago, and by 147% from May 2021, to $15.7 billion, according to Census Bureau data today. This by far outpaces the increase in construction costs (more on that in a moment).

Over the six years between 2015 and 2020, construction spending on factories has stagnated roughly between $6 billion and $7 billion a month. But in the spring of 2021, spending began to rise, and then surge amid the global supply chain chaos raging at the time. The driver behind the surge of construction spending now is computer, electronic, and electrical manufacturing.

Construction spending on factories is interesting because of the long-term outlook it provides on the US manufacturing sector – particularly regarding computer, electronic, and electrical manufacturing.

Nonresidential construction spending overall in May rose 17% year-over-year and 26% from two years ago to a record of $90 billion, driven in part by surging construction costs.

Nonresidential construction, in addition to factories, includes lodging, office, commercial, healthcare, education, religious, public safety, amusement & recreation, transportation, communication, power, highway and street, sewage and waste disposal, water supply, and conservation and development.

Nonresidential construction spending is very seasonal with a low in January and a high in the summer (green line). The red line reflects the 12-month moving average, which irons out the seasonality:

We’ve already seen another sign the economy is flying at cruising altitude and refuses to land, even with short-term interest rates over 5%: Multifamily Construction Starts Spiked to Highest since 1986, Single-Family Starts Bounce.

The share of manufacturing within nonresidential construction has doubled over the past two years, from a share of 8.9% in May 2021 to a share of 17.5% in May 2023. By looking at the percentage share, we eliminate the effects of rising construction costs:

Computer, electronic, and electrical manufacturing plants have been the primary drivers behind the surge of factory construction, according to an analysis in June by the Treasury Department…..

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