INSIGHTS

On April 29, 2024

AAM Viewpoints — The U.S. Manufacturing Renaissance is Taking Shape

The United States remains the largest consumer economy in the world, accounting for ~30% of global consumer spending or $20 trillion per year. Easy access to that market, favorable demographic trends, and low-cost energy have contributed to making the U.S. an increasing popular destination for global manufacturers. Multi-year global supply chain challenges, heightened prospects for punitive trade tariffs, and U.S. manufacturing incentive programs have all accelerated the pace of U.S. onshoring and re-shoring in what some are calling America’s manufacturing renaissance.

According to U.S. Census Bureau data, U.S. manufacturing construction spending eclipsed $200 billion for the first time in July 2023 and now stands at $229 billion, a 32% increase from the year-ago period. The bulk of new manufacturing construction is being generated in the computer, electronics, and electrical equipment categories, suggesting robust construction activity in data centers, semiconductor plants, and electronic component manufacturers. The pace of activity is expected to accelerate as funds from the Inflation Reduction Act and the CHIPS Act flow into the economy. The Semiconductor Industry Association reports that over 50 new semiconductor ecosystem projects have been announced during the past six months alone.

Over the past 50 years, much of this new construction would have found its way to other geographies as manufacturers searched for ways to tap low-cost labor and keep a lid on production costs. But advances in automation, robotics, and supply chain logistics have narrowed, or in some cases eliminated, the cost advantages of other manufacturing jurisdictions. A 2022 report by Forrester Research found that companies that implement automation can reduce their operational costs by 25–50%. U.S. manufacturers are now using digital, twin technology to simulate and optimize production processes, reducing the need for physical prototypes and accelerating the development of new products.

To help fuel this digital transformation, U.S. manufacturers are turning to the country’s energy sector for power solutions. Both the physical and digital manufacturing processes consume huge amounts of power, and access to low-cost energy serves as a meaningful cost advantage for U.S. manufacturers. A recent study conducted by BLS and Co., a consulting firm focused on location economics, showed that median electricity prices for industrial loads in the U.S. tend to be 34% to 49% lower than Chinese prices for the same base load. Meanwhile, natural gas, which acts as both a fuel and a feedstock in manufacturing is, on average, 3x as expensive in Europe as in the U.S., and was over 6x as expensive in Europe during 2022 as Europe transitioned away from Russian natural gas. Energy costs remain a key factor in manufacturing site selection and the U.S. has established itself as the low-cost provider.

While manufacturers choosing to locate within the U.S. reap the economic benefits, so too do U.S. consumers in the form of better pricing, improved product quality, and enhanced access to finished goods. With an average age of 39 years, the bulk of the U.S. population is in a prime position to consume. U.S. household income is high, household formation is rising, and housing demand is outstripping supply. Conditions are ripe for manufacturers to sell into the U.S market where demographics favor homebuilders and home improvement, omni-channel retail, and mobility. This confluence of factors is contributing to a surge in new manufacturing construction, the ecosystem that supports it, and the manufacturing renaissance that is well underway.

CRN: 2024-0405-11585 R