More and more U.S. businesses are bringing their manufacturing back home due to supply chain problems abroad, such as insufficient production caused by the pandemic.
Setting Up Home Base
“It has become a huge incentive to set up shop here in the United States,” Dodge Construction Network Chief Economist Richard Branch said on Yahoo Finance Live.
While American companies have traditionally moved their manufacturing facilities abroad in search of cheaper materials and labor, the global supply chain has been weakened by the recent pandemic—manufacturers are now beginning to bring production back home.
“It’s certainly clear that manufacturers want more control and more predictability over their supply chains than what they’ve gotten used to over the past couple of years,” Branch said.
Billions of dollars in inventory are being tied up due to supply chain delays—which has led to “chip fabrication plants” like semiconductors ramping up U.S. production and steel mills and EV battery factories, amongst others. Data from Dodge Construction Network showed that over the past year, construction of new manufacturing facilities in America has surged by 116%, compared to a 10% overall gain in all building projects. For example, Intel and Taiwan Semiconductor Manufacturing are building factories in Phoenix.
Issues May Arise
Branch points out a “significant risk” for the manufacturing sector in the years to come: its labor force. The U.S. Department of Labor’s data has shown that although manufacturing payrolls are increasing, the pace is not fast enough—there were 797,000 open jobs in May 2022.
A survey from Deloitte found that 45% of manufacturing executives have turned down business opportunities because they didn’t have enough workers. 83% say attracting and retaining a quality workforce is their top focus. “If that’s sustained, that could certainly constrain or put a cap on how much manufacturing can come back to the United States,” Branch explains.
Because the pandemic disrupted the delicate balance between on-shoring and offshoring, many countries, such as the U.S., need to recalibrate that balance to maintain a consumer-driven economy.
“The supply chain issues that currently exist certainly aren’t going away any time soon,” Branch said. “So, at least for the near-to-middle term, I continue to think the manufacturing sector here has some legs to run.”