August 2023 - We're all familiar with the usual statistics that economists, policy makers, and pundits discuss when trying to evaluate where the U.S. economy is headed. Our resident PGD economist recently came across a statistic that was new to us, though, and it's one you may never have heard referenced either: construction of new factories on U.S. soil.

An increase in factory construction is considered a positive indicator, not just for the current state of the U.S. economy, but also for the future. Businesses are not going to build new factories unless they plan on hiring people to work in those factories and to make products that consumers and/or other businesses are going to buy.

So we were pleased to read that construction of American factories is booming. A recent Yahoo Finance article (*) reported the following:

Between January 2022 and April 2023 construction spending on new factories in the United States nearly doubled.
In April specifically, factory construction accounted for 9.9% of all U.S. construction. Per Census Bureau records, that's the highest monthly percentage since 1993. (From 2010 through 2022, factory construction averaged just 5.7% of the total.)

(Image of new Intel factory in Arizona from Newsquick24.com)

As we explain in more detail below, this favorable trend in private-sector construction can be directly attributed to three major economic bills proposed by President Biden and passed by the 2021-2022 Democratic Congress: the Semiconductor (CHIPS) bill, the Infrastructure bill, and the Inflation Reduction Act. These bills included some direct spending, but also contained tax breaks and other incentives for businesses as well as consumers.

All of the major components of these pieces of legislation were popular with the American people, so the first two of these bills did pass with some bipartisan support (and, as you might expect, many Republicans who voted against them are now trying to take credit for the bills' projects in their districts). The desire and the ability to bring Republicans on board reflects, of course, the Biden team's ability to reach across the aisle, to compromise, and to get things done, something sorely lacking in the previous administration.

And speaking of the previous administration, some of Mr. Trump's supporters probably will try to argue, if they haven't already, that the tariffs he imposed on China must be a contributing factor to the factory construction numbers we cited above. Unfortunately for the Trump crowd, the business economists who have studied the tariffs have found that is not the case:

While some American firms did move their manufacturing out of China, that manufacturing did not come back to the U.S. Those companies simply moved their factories to other low-wage foreign countries that were not subject to the Chinese tariffs. It took the Biden incentives, which lowered costs in the United States, to bring that manufacturing back home. (**)

(Microchip Technology also plans to expand - image from Oregonlive.com)

Here are a few of the reasons why we can make that last statement. The Reshoring Institute, a non-profit and non-partisan organization who supports companies that currently do, or are proposing to, manufacture goods in the United States, surveyed executives at the companies who are participating in the new U.S. factory construction and reported the following results:

One of the primary reasons given for building the new factories is "Government incentives"
Most of the factories being built are in the electrical equipment, electronics, transportation, and chemical sectors, all of which track closely to the incentives included in the Democratic bills we mentioned above.

So, to us, the American factory construction we're now seeing is more proof that the legislation passed by Democratic Congresses are the types of measures that help grow the U.S. economy, unlike Republican Congresses' tax give-aways to millionaires and billionaires, which have limited economic benefits and primarily just drive up the federal debt.

(Biden signs Chips Act, which aids U.S.-based manufacturing)

Consequently, as we've said before, the economic results of Democratic legislation directly helps us little guys/gals and that's why, when it comes to the U.S. economy, we'll continue to stick with the Dems.

Notes:

(*)Among the many internet articles discussing the factory construction boom, the Yahoo Finance article we quoted from is "A Factory Boom Is Finally Happening"

(**) For a detailed analysis of the Trump trade war as a whole, see our article from last year, "New Study Shows Trump's Trade War Was a Failure"

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