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Supply chains: How the pandemic may lead more manufacturers to the U.S.

More and more U.S. companies are moving their production and manufacturing facilities back home due to the pandemic supply chain snarls and the insufficient production abroad.

As a result, it has become "a huge incentive to set up shop here in the United States," Dodge Construction Network Chief Economist Richard Branch said on Yahoo Finance Live (video above).

For decades, American firms have been shifting their production facilities abroad in pursuit of cheaper materials and labor. The pandemic, however, revealed the weak global supply chain while also accelerating the move to bring manufacturing back to America.

"It's certainly clear that manufacturers want more control and more predictability over their supply chains than what they've gotten used to over the past couple of years," Branch said.

While overseas manufacturing may cost less, new "manufacturing construction" factories "have totaled $41.6 billion over this last 12 months," he added.

The supply chain delays have resulted in billions of dollars tied up in inventory, which have led to "chip fabrication plants" like semiconductors ramping up U.S. production, along with steel mills, EV battery factories, food production plants, sawmills, and other building material products, Branch noted.

Data from Dodge Construction Network showed that construction of new manufacturing facilities in the U.S. has surged 116% over the past year, revealing a 10% gain on all building projects combined. For example, in Phoenix, Intel (INTC) is building two factories while Taiwan Semiconductor Manufacturing (TSM) is also developing one in the city.

Potential headwinds

Even though re-shoring strengthens the U.S. economy, there is still a "significant risk" that lies ahead for the manufacturing sector in the years to come, according to Branch: the labor force.

Data from the U.S. Department of Labor has shown that manufacturing payrolls have been increasing, but not fast enough. There were 797,000 open jobs in the manufacturing sector in May 2022

A Deloitte survey found that 45% of manufacturing executives have turned down business opportunities because of a lack of workers, and that attracting and retaining a quality workforce is the top focus for 83% of manufacturers.

President Biden delivers remarks aboard the Battleship USS Iowa Museum at the Port of Los Angeles on June 10, 2022 in California. (Photo by Mario Tama/Getty Images)
President Biden delivers remarks aboard the Battleship USS Iowa Museum at the Port of Los Angeles on June 10, 2022 in California. (Photo by Mario Tama/Getty Images)

"If that's sustained, that could certainly constrain or put a cap on how much manufacturing can come back to the United States," Branch explained.

Because the pandemic was monumentally disruptive, many countries such as the U.S. needed to recalibrate the delicate balance between on-shoring and offshoring to maintain a consumer driven-economy.

Branch is bullish on the manufacturing sector when factoring in high-tech, high value-added manufacturing like EV battery plants and chip fabrication plants.

"The supply chain issues that currently exist certainly aren't going away any time soon," Branch said. "So at least for the near-to-middle term, I continue to think the manufacturing sector here has some legs to run."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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