Offshore currents for decades drove U.S. manufacturing of all types to lower-cost overseas markets. But now those currents are reversing on the back of legislation, including the Inflation Reduction Act.
U.S. chipmakers, after the global supply-chain meltdowns caused by the pandemic, are leading the trend. But many others are also taking back ground. Plastics and chemicals companies have swarmed the U.S. mainland to be near lower-cost oil and natural gas. And now certain mining, electronics and auto component makers also seek a broader U.S. stance, as federal EV and solar subsidies boost demand for U.S.-sourced goods.
The result is the largest boom in U.S. manufacturing facility construction since the 1960s. Chipmakers, automakers, food and beverage companies, and transportation equipment companies are spending many billions on new factories. Those projects are receiving a raft of federal support from the CHIPS Act, the Inflation Reduction Act (IRA) and the $1 trillion Infrastructure Investment and Jobs Act.
Through June, spending on the construction of new manufacturing plants totaled $196 billion, around a 60-year high when adjusted for inflation, according to White House Chief Economist Heather Boushey. The current level of spending on new manufacturing facilities is well above the inflation-adjusted record of $140 billion in the late 1960s.
Capital flowing to projects for new manufacturing facilities continued to increase through July. The Census Bureau announced in early September that year-to-date spending totaled $201 billion, at a seasonally adjusted rate.
Ken Simonson, chief economist for the Associated General Contractors of America, told IBD the pace of spending was the fastest in his 22 years with AGC. And the prospects for an ongoing American manufacturing boom remain very good.
"Some of these announcements, they haven't even broken ground or they're at a very early stage of construction," he said. "These numbers are going to continue to rise, probably at double-digit rates."
Inflation Reduction Act: What Industries Are Driving The Manufacturing Boom?
Simonson said projects related to the computer/electrical sector made up around 55% of total spending. Second largest was the chemical manufacturing industry, which made up around 19% of the $201 billion. This includes pharmaceuticals, plastics, petrochemicals and the liquefaction trains for natural gas.
Also in the big-spending mix are food and beverage companies and the transportation equipment industry, according to Simonson.
"Manufacturing has been on a tear for well over a year now," Simonson said in an interview. "Companies have been looking to shorten supply chains or get away from areas perceived as risky, such as East Asia."
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Construction spending nearly tripled in the past 26 months — from $76 billion at a seasonally adjusted annual rate in May 2021 to $201 billion in July 2023.
The biggest contributor by a long shot has been the semiconductor sector. Chipmakers have recently started projects in Arizona, Texas, Ohio, New York and Kansas. Simonson added that new manufacturing projects outside the semiconductor field are widespread across the U.S.
Chevron Phillips Chemical, a unit of Chevron, and QatarEnergy announced in November 2022 an $8.5 billion plant to produce polyethylene. Also in November, Shell chemicals arm Shell Polymers opened a $6 billion polyethylene plant in Beaver County, Pa.
And of course, there is the massive restructuring underway among U.S. automakers.
"You have a huge number of announcements of big new electric-vehicle plants and battery plants," Simonson said. This includes Tesla's lithium processing plant underway in Texas. He added that there are also announcements for new plants to produce parts and machinery for offshore wind and solar panels.
Semiconductor Stocks Benefiting From CHIPS Act
Semiconductors are the vital building blocks of an exhaustively electronic world. There are two main divisions within the chip industry.
On one side are the manufacturers. Some manufacturers, like Intel, design and make their own chips, as well as provide production, or foundry, services for others. Others are pure-play foundries that strictly provide outsourced manufacturing services. Taiwan Semiconductor is by far the largest player in this group.
The other side of the semiconductor industry is the fabless chip group. These companies include Nvidia, Broadcom and Advanced Micro Devices. These are companies that either evolved strictly as chip designers, dependent on the manufacturing group to produce their chips, or which divested their manufacturing assets in order to focus on research, development and marketing.
The building construction boom is being driven by chip manufacturers. Collectively, the 32 stocks in the IBD-tracked Electric-Semiconductor Manufacturing industry group have gained only around 5% in 2023, underperforming the broader market.
Fabless players, not constrained by the kind of facility and equipment costs dealt with by manufacturers, can instead turn more of their cash flow back into research and development, or direct it straight to their bottom line.
The fabless group has so far rallied more than 26% in 2023, outpacing the Nasdaq, and better than doubling the S&P 500's gain.
Still, a number of stocks in the chipmaker group have also turned in powerful gains. Onsemi has surged nearly 50% in 2023. Meanwhile, Intel stock has gained around 30% and TSM has advanced around 15%.
The CHIPS Act Propels Construction But No Money Yet
The CHIPS Act provides $52.7 billion for U.S. semiconductor research, development, manufacturing and workforce development. Despite the swell in construction spending, CHIPS Act funds have not yet made their way to companies for specific projects. Observers expect funding could start rolling out by the end of the year.
A large portion of new chip industry manufacturing was announced before the CHIPS Act went into effect. In May 2020, Taiwan Semiconductor launched a $12 billion effort in north Phoenix, Ariz., aiming to start production in 2024. Samsung announced a $17 billion facility project in Taylor, Texas, in 2021. In January last year, Intel anted up with a $20 billion plan for Licking County, Ohio.
But even that pace accelerated following enactment of the August 2022 legislation, said Dan Rosso, senior director of communications for the Semiconductor Industry Association. In a released statement, Russo said semiconductor companies and their suppliers have announced more than $200 billion in private investments for new manufacturing projects in 22 states since the CHIPS Act was introduced in 2020.
"Once fully implemented, the new U.S. government incentives and R&D investments will help level the global playing field and put America on track to capture a larger share of the world's chip production and innovation in the years ahead," Rosso said.
Inflation Reduction Act: Engineers, Construction Materials
Its fairly clear so far who is doing most of the spending. It's less clear which companies are on the receiving end of the building boom. Samsung tapped Mississippi-based W.G. Yates & Sons Construction as its general contractor for the Taylor project, according to the Austin Business Journal.
Privately owned Yates previously worked on manufacturing plants in the U.S. and Mexico for Volvo Group, Toyota Motor and Nissan Motor.
The largest publicly held U.S. construction and engineering firms include Jacobs Solutions, Quanta Services and Aecom. The 19-stock group is up about 19% so far this year, held back by some slow movers.
But Sterling Infrastructure, which focuses on high-tech and transportation projects, has rallied 120% since the start of the year. Quanta, which takes on large-scale power production and high-tech projects and is an IBD Leaderboard stock, has climbed 35%.
Once projects are underway, a broad range of materials and services suppliers benefit.
Martin Marietta, Vulcan Materials and CRH are among the biggest names in the cement, concrete and aggregates industry group. The dozen-stock group has held even with the Nasdaq so far this year, up more than 24%.
Eagle Materials has a 24% gain. Dublin-based CRH has advanced 37%, and shifted its primary listing from London to New York on September 25.
Another hot cement-mixed ticket has been Knife River. The Bismarck, N.D., outfit spun out from MDU Resources Group in May. It has since logged a 22% gain.
Meanwhile, machinery/construction stocks, like Caterpillar, could also benefit from the surge in manufacturing construction spending. United Rentals, a go-to supplier for contractors large and small, is up 25% year to date and is up around 40% since the CHIPS Act passed last year.
The Wall Street Journal also recently reported that the current manufacturing construction boom could present an opportunity for steel stocks. Top seeds there include U.S. Steel and Nucor, the largest U.S. manufacturer of rebar steel. Steel Dynamics and Cleveland Cliffs are also on the list.
Inflation Reduction Act: Changing The Economics Of U.S. Manufacturing
Inflation has been an issue affecting the efforts by all industries to build their U.S. manufacturing presence. Rising prices have pushed Samsung's Taylor, Texas, price tag toward the $25 billion mark. Labor shortages have forced a pushback of the TSM startup to 2025.
Meanwhile, Ohio is hustling to prepare the way for Intel's new facility. Community colleges and technical schools have begun offering Intel-specific courses. And the Ohio Department of Transportation in July announced an additional $90 million to improve roads around the Intel semiconductor factories under construction.
Wedbush analyst Matt Bryson told IBD those and other semiconductor projects are the early vanguard of the rising manufacturing buildup and rebound in the U.S.
Among other chip industry projects, Micron announced in October 2022 that it would invest up to $100 billion in a new "megafab" in Clay, N.Y. Meanwhile, Texas Instruments is working on the construction of plants in Texas and Utah.
"Because of U.S. tensions with China, there's a desire at companies who are using these large foundries to build chips for them to get production moved away from an at-risk region, which I think Taiwan is considered at this point," Bryson said.
The analyst added that the new legislation, including the Inflation Reduction Act, has changed the landscape and made it more attractive for companies to start manufacturing in the U.S.
"That's really the difference where, you know, four years ago, five years ago, just the economics of building facilities in foreign nations was a whole lot better than it is now," Bryson said.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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