Rising costs, tariffs discourage warehouse and plant projects
When Mitchell Metal Products sought to build an addition to its metal-stamping plant in northern Wisconsin last fall, company president Tim Zimmerman expected to spend about $1.2 million, based on a similar expansion in 2018 that cost $727,000. The lowest bid for the new project came in at $2.1 million, the Journal reported.
“The realities of contemporary pricing sobered us up very quickly,” Zimmerman told the Wall Street Journal. “We abandoned the idea.”
The experience at Mitchell Metal Products reflects a broader slowdown in U.S. factory and warehouse construction, even as the artificial-intelligence boom drives a surge in data-center building that is helping to mask weakness in other categories of nonresidential construction, according to the Journal.
Construction spending on data centers rose 23% in May from a year earlier, according to U.S. Census Bureau data cited by the Journal. But data centers accounted for only 8% of total private, nonresidential construction spending. Spending on manufacturing buildings, which make up nearly a quarter of the category, fell 22% year-over-year in May to a seasonally adjusted annual rate of $174 billion.
“Beyond data centers, there’s not really much moving construction forward,” Anirban Basu, chief economist for the Associated Builders and Contractors trade group, told the Journal. “There’s just not much depth to construction spending right now.”
The Trump administration has pushed to reshore manufacturing through tariffs on imported goods. But analysts and company officials said the same tariffs have driven up domestic prices for construction materials, making it harder to justify new plants.
Materials costs for nonresidential construction have risen more than 55% since early 2020, according to the government’s producer price index, with fabricated steel and copper wire seeing even larger increases. Thomas Murphy, vice president of Power & Construction Group, an electrical-infrastructure contractor near Rochester, New York, told the Journal that transformer prices are up about 70% in the past five years and order backlogs for some electrical equipment extend more than two years.
“Anything that is available in the United States is gobbled up immediately,” Murphy said. “Between data centers and solar projects, they’re taking a huge bite of any equipment.”
Some manufacturers are proceeding with expansions but on a smaller scale. Scott Seaholm, chief executive of Ohio-based Universal Metal Products, told the Journal he had wanted to add 60,000 square feet to a plant in McAllen, Texas, at a cost of about $200 per square foot — roughly 60% higher than ordinary industrial buildings in the area cost a couple years ago. After the project fell more than a year behind schedule, Seaholm said he scaled it down to 40,000 square feet to make it affordable.
“I need the plant capacity,” Seaholm told the Journal. “I never expected this to be such a pain in the neck.”
Toyota last week announced plans to spend $3.6 billion by 2030 to shift production of its Tacoma pickup trucks from Mexico to a San Antonio assembly plant, a move analysts said would help the Japanese automaker defray U.S. tariff costs and keep dealers better stocked.
For a manufacturer with plants or suppliers overseas, “Is this the time to move my supply chain to the United States? In many cases, the answer is no,” Basu said.
The construction boom in AI data centers continues to draw investment, but the broader weakness in building activity indicates that high costs, labor shortages and policy uncertainty are limiting the nationwide construction recovery to narrow segments of the economy, the Journal reported.