By the end of last year, rate hikes had brought inflation down to 6.5 percent, still more than three times the Fed’s 2 percent target. Unemployment, which had peaked during the pandemic (13 percent in the second quarter of 2020), registered just 3.5 percent as of December 2022 — the lowest rate since 1969! — indicating an extremely tight labor market for companies looking to hire. However, consumers — buoyed by plentiful jobs and slowly decreasing prices — continued to spend.
So, what does this all mean for the company that’s looking to invest and grow at its current or new location? Area Development polled its corporate executive readers at the end of 2022 to find out about their plans and priorities for the coming year. The charts that follow illustrate their responses. Also included is commentary about the corporate responses from highly regarded consultants to industry.
Respondents’ Profile and Top Concerns
Nearly half of those responding to our 37th Annual Corporate Survey are with manufacturing firms, and 53 percent are either the owner of their company or the chairman, CEO, president or partner. Forty-three percent operate just one domestic facility, 16 percent have two, and nearly a quarter are running five or more domestic facilities. Just 26 percent of our respondents operate foreign facilities. Of those that do, however, nearly half operate five or more.
Nearly 50 percent of the respondents to our Corporate Survey say recent government legislation, i.e., the CHIPS and Science Act, Inflation Reduction Act, etc., will greatly or moderately affect their expansion and investment plans. Nearly 40 percent of the corporate respondents employ fewer than 100 people; a third of the respondents employ between 100 and 499 individuals all told, and about a fifth employ 1,000 or more people across their operations. Considering the size of their companies based on employment numbers, it’s no surprise that only 32 percent utilize the services of consultants when making their location and expansion decisions.
Interestingly, nearly 50 percent of the respondents to our Corporate Survey say recent government legislation, i.e., the CHIPS and Science Act, Inflation Reduction Act, etc., will greatly or moderately affect their expansion and investment plans. Nearly 60 percent say their plans will be greatly or moderately affected by current economic conditions, i.e., inflation, a potential recession, etc. In fact, nearly half say that economic pressures will exert the greatest influence on their plans, followed by 38 percent who say workforce availability is their top concern.
37th Annual Corporate Survey
Plans for New and/or Expanded Facilities
Only 29 percent of the Corporate Survey respondents plan to open a new domestic facility in 2023. About a quarter of those new facilities will house manufacturing operations, with another quarter being warehouse/distribution centers. More than half of the respondents say the new facilities will create fewer than 100 jobs all told, but 14 percent are planning to create 500–999 jobs and 10 percent 1,000 or more jobs in total at their new facilities. Additionally, 32 percent of the respondents say they plan on expanding the physical footprint of an existing domestic facility this year.
When it comes to the location of new domestic facilities, as in years past, the greatest percentage are planned for the southern regions of the U.S. The South, South Atlantic, and Southwest regions will account for 37 percent of the total planned new facilities. Another 15 percent are slated for the Midwest and 11 percent for the Middle Atlantic States.
It should be noted that a fifth of the respondents to our 37th Annual Corporate Survey say their new facilities include reshoring or near-shoring to Canada, Mexico, Puerto Rico or the U.S. In fact, 7 percent of the total planned new facilities are slated for Canada, 4 percent for Mexico, and 2 percent for Puerto Rico.
How Have Corporate Priorities Changed?
The factor ranked highest is labor costs, considered “very important” or “important” by 89.1 percent of the Corporate Survey respondents. This factor retained its first-place ranking from the previous year’s survey; however, in 2021, 96.4 percent of the respondents gave it a combined importance rating. Surprisingly, no factor received a combined importance rating in the 90th percentile this year.
The factor ranked highest is labor costs, considered “very important” or “important” by 89.1 percent of the Corporate Survey respondents. Quality of life lands in the #2 spot in the rankings — a jump from a tie in 11th place the previous year — with a current 87.1 percent combined importance rating. As workers took stock of their lives during the pandemic, they placed greater emphasis on work/life balance, resigning from unfulfilling jobs or opting to continue working remotely or demanding greater flexibility in schedules. Quality of life thereby gained in importance among the site selection factors corporate executives consider when planning their expansion or location moves, bumping availability of skilled labor into the #3 spot, considered “very important” or “important” by 85.8 percent of the Corporate Survey respondents. However, when considered in the “very important” rating alone, availability of skilled labor receives the highest rating of all the site selection factors at 54 percent.
In the previous year’s survey, energy availability and energy costs were rated together in third place with a combined importance rating of 94.7 percent. We separated these factors in the current survey, and energy availability alone now ranks fourth, with an 82.3 percent combined importance rating. Oddly enough, with the rising costs of energy, the energy costs factor ends up in the #8 spot, considered “very important” or “important” by just 79.4 percent of the respondents.
However, construction costs, which was previously tied for 11th place last year, moves up to the #5 spot, again considered “very important” or “important” by more than 80 percent of the respondents. The scarcity of available land on which to construct new facilities is illustrated by the 10th place ranking of this factor, with a 78.1 percent combined importance rating and up from 19th in the previous year’s Corporate Survey. And the need to get facilities up and running quickly is reflected in the increase in importance of expedited or “fast-track” permitting, jumping into the #16 spot in the rankings, up from its previous 22nd ranking, with a current combined importance rating of 70.3 percent.
Although corporate tax rate holds steady with a 7th place ranking, considered “very important” or “important” by 79.7 percent of the Corporate Survey respondents, the related factors of tax exemptions and state and local incentives are tied for the #13 spot, with a 73 percent combined importance rating.
Another surprising drop in the importance ratings and rankings goes to highway accessibility, which historically ranked high. Just 77.8 percent of the respondents to our 37th Annual Corporate Survey give this factor a combined importance rating, placing it in the #11 spot.
The large decrease in importance of raw materials availability — dropping 26.5 percentage points and a 6th place ranking to the #22 spot this year with a combined importance rating of just 61.3 percent — is inexplicable. Over the past few years, COVID-related shutdowns and labor shortages, not to mention the war in Ukraine, have led to shortages of everything from paper and plastics to semiconductor chips, and these shortages are expected to last well into the future.
When it comes to the location of new domestic facilities, as in years past, the greatest percentage are planned for the southern regions of the U.S. Other factors landing in the bottom half of the rankings did not move significantly. However, interestingly, two factors recently added to our rankings — DEI and ESG initiatives — now are considered “very important” or “important” by more than 40 percent of the Corporate Survey respondents, although they rank only 28th and 29th, respectively, among the site selection factors. New workplace norms are promoting diversity, equity, and inclusion in the workplace, and DEI initiatives are now part of the larger ESG corporate focus of reducing energy use/greenhouse gases and maintaining high standards of governance.
When the National Association of Manufacturers surveyed their members in the 4th quarter of 2022, more than 60 percent of the respondents expected a recession in 2023. However, as the economy added more than a half million jobs in January 2023, many analysts are rethinking their predictions of recession.
In order to weather whatever challenges lie ahead, according to Deloitte, the manufacturing sector will continue to invest in advanced technologies, implement a range of talent management strategies as well as tactics to enhance their supply chains, continue to progress toward smart factory transformations, and focus on corporate social responsibility. Companies that take such steps will be able to grow their operations and bottom lines over the course of 2023.