by Josh Bays, on Aug 6, 2024 9:00:00 AM
One of the most difficult challenges faced by manufacturers during the site selection process is predicting the availability of critical resources in the future, especially the availability of a qualified workforce. Too often, companies focus their workforce analysis on historical data and the current state of the workforce market. Due to the very sudden and recent boom in domestic manufacturing, most companies struggle — or do not take the time — to identify those leading indicators that can bring potential downstream workforce challenges into focus.
Site Selection Group, the largest independent location advisory, economic incentive and real estate services firm in the United States, has a 20-year history of helping manufacturing companies locate production operations. Unequivocally, the No. 1 challenge they face after announcing a project is the workforce ramp-up.
Current news rhetoric and key data points suggest the competition for workers is easing
Manufacturing employment in the United States returned to its pre-COVID level in mid-2022 and has held stable since then, according to the latest data from the Bureau of Labor Statistics.
Source: Bureau of Labor Statistics
Tightly correlated with these employment figures is unemployment data in the manufacturing sector. Manufacturing unemployment has held steady at around 3% since January 2020 but has shown recent signs of trending upward.
Source: Bureau of Labor Statistics
All of this comes at a time when there seems to be more rhetoric about the contraction of the manufacturing sector similar to this Reuters article. There is no doubt the sector is facing headwinds such as prolonged elevated interest rates, inflation, decreased consumer spending and a contentious presidential election. All of this implies potential relief on the horizon for manufacturers seeking to staff their plants, but Site Selection Group is skeptical that is the case.
What happened to manufacturing projects announced since 2022?
Anybody associated with industrial site selection or economic development will tell you manufacturing project activity over the last three years has eclipsed anything they’ve seen in their career. And despite employment data and unemployment statistics implying this activity is simply a rebound from COVID, the overwhelming majority of announcements are incremental due to the reshoring of production and federal programs such as the Inflation Reduction Act and CHIPS Act.
One of the most reliable indicators of this activity is construction spending in the manufacturing sector. As the data below from the U.S. Census Bureau indicates, construction spending has grown exponentially from January 2022 through the present. While the correlation between construction spending and manufacturing employment is not linear due to factors such as automation and artificial intelligence, the two statistics have a correlated relationship; however, employment significantly lags behind spending.
Source: Bureau of Labor Statistics
What impact will job creation have on the manufacturing market and new site selection projects?
Manufacturing projects are typically publicly announced once a site and incentive package have been secured. And while many companies start working on their hiring strategy immediately, it is often years before they reach full employment. In the post-COVID market, it typically takes two years or more for a company to design, permit and build a facility. In addition, they have to install machinery and complete test production runs before ramping up to full capacity. Therefore, a significant project that was announced in early 2022 won’t be detected in the workforce data until mid-2024.
Factor lag time into site selection to anticipate tomorrow’s workforce trends
While rather obvious and intuitive, there are several things that companies can do during the site selection process to mitigate risks. At a minimum, Site Selection Group recommends manufacturers consider the following:
1. Model workforce data based on announced projects under construction
It is imperative to understand what significant projects have been announced, as well as their intended workforce plans. Fortunately, most projects publicly disclose their hiring and capital commitments due to incentive compliance standards. Modeling the anticipated employment will shed meaningful light on any downstream constraints.
2. Understand the region’s availability of sites and infrastructure for future projects
Some markets are poised for future success based on investments made in sites and infrastructure. For example, Greensboro-Winston Salem, North Carolina, was at one time the bridesmaid to transformational industrial projects like the Toyota-Mazda project that went to Huntsville, Alabama. But everybody in the industry knew it was just a matter of time before they cashed in on their investment and attracted transformational projects such as the Toyota battery plant, Boom Supersonic and VinFast.
3. Aggressively assess the workforce development infrastructure
When bulk hiring in today’s market, the majority of employees will likely need enhanced skills and training. Given that it’s very difficult for companies to provide that training in parallel with plant construction, successful projects leverage the local workforce development infrastructure early in the process. Evaluating the depth and breadth of their capabilities, as well as their customized services, can sometimes be the meaningful differentiator between two locations.
