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Reshoring Effort Hits Hurdles As Manufacturers Press Pause, Confidence Dips

Manufacturers in the U.S. responded to pandemic-era supply chain disruptions and an increased focus on sustainability by leaning into reshoring production. But a new report and three stalled megaprojects highlight the challenges in the effort to bring manufacturing stateside.

Labor shortages are delaying the construction and opening of at least two U.S. manufacturing facilities.

A survey released Sept. 13 by the National Association of Manufacturers found the lowest level of optimism among its members since the second quarter of 2020. Conversely, the survey found concerns about an unfavorable business climate were at their highest level since Q2 2017.

Among the other top challenges facing respondents were their ability to attract and retain a quality workforce and a weaker domestic economy. 

“Manufacturers continue to be challenged in today’s economy, but what this survey makes clear is that unbalanced federal regulations are harming families and communities, with nearly two out of three manufacturers reporting that the regulatory burden is preventing them from hiring more workers or increasing pay and benefits,” NAM President and CEO Jay Timmons said in a statement.

Scout Motors, an American subsidiary of Volkswagen Group, has paused pre-construction site clearing activity at a $2B electric vehicle plant in Blythewood, South Carolina, Construction Dive reported. In a statement to the publication, the firm cited concerns from environmental groups along with state and federal agencies around wetland development at the site, causing it to hold off construction work while permitting moves ahead. 

American Battery Factory also postponed construction of a $1.2B lithium phosphate battery factory in Tucson, Arizona. Site work was scheduled to begin this month but has been put off until November while the company conducts further surveying and geotechnical assessment, often needed to understand the makeup of the dirt below a project. 

Those delays follow a July decision from TSMC, the Taiwan-based semiconductor company, to hold off on opening its $40B Arizona chip factory until 2025 due to labor shortages that, along with pandemic surges and licensing problems, had already delayed the project by six months.   

Despite the headwinds, construction spending for manufacturing facilities has shown significant growth, according to a Cushman & Wakefield report, spurred by the Infrastructure Investment and Jobs Act, Inflation Reduction Act and CHIPS and Science Act. 

Inflation-adjusted construction spending for manufacturing facilities has nearly doubled since the end of 2021, according to the Department of the Treasury. Leasing activity in the sector is also at its highest level on record, with just under 137M SF leased in 2022, up 27% from 2020 and 42% from the 10-year pre-pandemic average. 

Construction activity is concentrated in the development of space for computer, electronic and electrical manufacturing, which the C&W report says jumped from 15% of investment over the past few decades to 56% of activity, more than four times the level of investment at the end of 2021. 

While manufacturing development has seen an uptick, headwinds beyond labor shortages and labyrinthine permitting will add further challenges, the report says. The American Society of Civil Engineers says the U.S. is only spending half of what it needs to invest in infrastructure to bring it up to par, and the trade group estimates a funding shortfall of $2.6T over the next 10 years. 

There is also an increasingly limited number of sites that can support large manufacturing operations. 

“Manufacturing requires a lot of power, and many greenfield land sites lack sufficient power to host the manufacturing sites needed,” the report’s authors wrote. “Limited land options for commercial real estate make selecting a new site difficult, but it will be more challenging for manufacturing users.”