Why construction spending in the manufacturing sector is on the rise

The U.S. Department of the Treasury has taken a deep dive into the surge in construction of U.S. manufacturing facilities. Eric Van Nostrand, Acting Assistant Secretary for Economic Policy; Tara Sinclair, Deputy Assistant Secretary for Macroeconomics; and Samarth Gupta, Special Assistant for Economic Policy, recently authored an article outlining the factors contributing to the increase in construction spending. Since the end of 2021, spending on manufacturing plants has doubled, with the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and CHIPS Act providing funding and tax exemptions for these projects.

According to the authors, the increase in construction is comprised of three factors:

• An increased demand for computers and electronics
• An overall increase in U.S. non-residential construction spending
• When compared to other countries, the manufacturing construction surge is a uniquely American phenomenon

In an excerpt from the article, the authors write: “analogous data sets measuring some concept of real construction for manufacturing purposes. Japan has had seen increases in the floor area of new manufacturing over the past year, but remains below pre-pandemic levels. Germany’s real new construction spending on factory and workshop buildings has remained relatively stable over the past decade. Notably, the United Kingdom and Australia did see meaningful increases in real industrial construction in 2022, rising about 40 percent from 2021 levels. But those series have leveled off since then, over the period in which U.S. manufacturing construction has nearly doubled.”