Decreased Factory Utilization and Increasing Capacity
Factory construction has trended downward due to economic uncertainty, throughput improvements, material costs increasing, and increasing interest rates. Companies are not willing to risk investment at this time without a sound future forecast to utilize additional factory production.
The surge in 2024 was driven by policies such as the CHIPS Act. Demand cooled as companies prioritized expanding throughput at existing sites over funding new facilities (this makes sense). Improving throughput at existing facilities make a lot of sense in my book. Less cost. Dean Baker adds to this introduction beyond this graph taken from FRED.
“Factory Construction Down Again in April, Patreon
Dean Baker
Yesterday, the Commerce Department released data on construction in April. It showed that factory construction is continuing to fall. In nominal terms, it dropped another 1.2% in April from its March level. Adjusting for inflation, the decline would be roughly 1.3%.
Factory construction has been on a downward path since the third quarter of 2024. It is now down by close to 27% from its recent peak.
It is striking that we have seen this plunge even as Donald Trump is boasting about a manufacturing boom. This turns reality on its head.
As I’ve pointed out in past notes, there was an unprecedented boom in factory construction under Biden. The peak in 2024 was well over twice the pre-pandemic level. This boom was driven by three major bills that Biden was able to get through Congress: his bipartisan infrastructure bill, the CHIPS Act, which provided incentives to build advanced semiconductor manufacturing in the United States, and the Inflation Reduction Act, which provided support for clean energy and EVs.
This boom went largely unnoticed by the media. As a result, most people never realized it took place.
In any case, with Trump quite explicitly trying to reverse most of Biden’s policies, the boom is going in reverse, with factory construction dropping rapidly. Trump may not yet be aware of this reality, but the rest of us are.