Why US Factory Construction Is at Its Highest Level in Half a Century

Construction of factories has hit the highest level in more than 50 years thanks to booming demand for semiconductors and billions of dollars in investments from the federal government.

While construction could slow once the funds allocated by the CHIPS and Science Act of 2022 have been distributed, Moody’s Analytics economist Ed Friedman wrote Thursday that semiconductor demand and geopolitical tensions would determine whether additional government funding sustained the construction boom.

U.S. Wants to Become Dominant Semiconductor Maker

After supply chain disruptions caused by the pandemic revealed the degree to which the U.S. depended on foreign countries for semiconductors, legislation was passed to increase domestic production.

Since late 2023, more than a dozen companies have reached agreements with the federal government and received over $30 billion in grants to build or expand facilities across the U.S. The agreements have been made with domestic companies like Intel (INTC), Texas Instruments (TXN), and Micron (MU), along with international heavyweights like Taiwan Semiconductor Manufacturing Company (TSM) and Samsung.

The grants awarded to international companies like TSMC could prove especially important, Friedman wrote, because of the massive scale of the company’s market, which includes customers like Apple (AAPL) and Nvidia (NVDA).

Once TSMC completes its planned $65 billion project in Arizona, for which it has received $6.6 billion in incentives, the facility will help fulfill demand from its U.S. customers. That could be vital if China takes more aggressive action against the company’s home country of Taiwan in the coming years, Friedman said.

If China does escalate tensions with Taiwan, or semiconductor demand increases, more federal funding could follow, while construction will likely slow if that funding doesn’t come, according to Moody’s.