Is reshoring causing overcapacity or creating demand in North America?

The latest US BLS data shows a huge leap in manufacturing capital spending – by an inflation adjusted 116% since the start of its run up beginning in May 2021 and 45% since the end of 2022!

However, US manufacturing utilization reached a peak in April 2022, at 80%, the latest figure falling to 78% in May this year.?Is reshoring impacting the supply/demand balance?

While new manufacturing construction clearly began before the CHIPS and Science Act and Inflation Reduction Act (both enacted in August 2022), those legislations will likely help sustain investment performance. Other regions of the world have not seen the same the large uptick in manufacturing investment. For more on US reshoring, see my previous posted articles.

Reshoring, which can include near-shoring, is being driven mostly by supply chain security and less on world capacity availability.?Constraints on the efficient operation of world manufacturing assets are the motivation.??

The top industries growing in new investment, in order of investment size, are computers, electronics, electrical, food & beverages, chemicals and transportation equipment. Not much investment so far on energy transition projects.??

New spending reflects a higher cost capacity, especially related to the highly capital-intensive semiconductor manufacturing sector, which had been underrepresented in the past and exaggerates the impact on overall “manufacturing supply”.?Therefore, the new spending has less impact on capacity utilization than it appears.?Utilization is likely more related to broader economic factors.

In fact, new electronics manufacturing will have a positive impact on nearly all other manufactured merchandise segments in North America, as many rely on electronics inputs.?A greater share of consumer goods have electronics components, from kids’ toys and wristwatches.?New investments in electronics will help mitigate recent shortages experienced in electronics-dependent aircraft and automobile parts.

This means that energy, chemicals, and materials demand in the US will grow at high rates for the construction of these plants and for the longer term as inputs to production.?This includes electronics chemicals (like ultra-high purity wet chemicals, helium, fluorocarbons, neon, others), copper, food packaging, sanitation chemicals, food additives, injection molded parts, and many other materials.

North American materials producers must be prepared to meet the competition of reshoring companies bringing along their overseas materials suppliers.?Industrial customers will demand low cost, reliable, and innovative products.?New materials plants, from chemicals to copper, will also be required to be built as efficiently as possible to feed these new state-of-the-art advanced manufacturing facilities.?More on this in my next article.

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