In 2022, the country saw a surge in announced capital investment. More than $300 billion was announced, about 60% more than 2021, and three times the 2017-2019 annual average. At the same time, announced jobs dropped by about 40% from 2021 and 30% from the 2017-2019 annual average.
Source: IncentivesFlow
This is a dramatic shift and was felt in the Charlotte Region as well where announced capital investment grew by more than 300% in three years, going from $1.4 billion in 2019 to $4.9 billion in 2022. During the same timeframe, announced jobs declined by about 20%.
EVs and Semiconductor Manufacturing Boosting Capital Investment
It is hard to separate this trend from another in economic development – the increased number of mega projects with significant capital investment. The number of announcements with more than $1 billion in capital investment went from 14 in 2019 to 41 in 2022. A few sectors have driven the rise in megaprojects. The automotive manufacturing sector accounted for about 40% of megaprojects as the industry accelerated the transformation of its manufacturing facilities and supply chain to accommodate EV manufacturing. Relatedly, the semiconductor manufacturing industry, which is important for EV manufacturing among other industries, as well as other green energy projects provided an additional supply of mega projects. Altogether, these industries accounted for about ¾ of mega projects in 2022.
What’s driving fewer announced jobs?
While one year does not constitute a trend, there are several reasons why announced jobs may continue to decline over the next few years. First, as manufacturing and distribution facilities continue to integrate automation to complete routine tasks, fewer workers are necessary to expand production. Companies will be incentivized to invest more in automation not only because it often comes with productivity gains, but also due to the difficulty of finding workers. Those challenges will most likely remain as the population ages and labor force participation is expected to continue to decline. This trend will simultaneously continue to push up capital investment totals while limiting job announcements.
Another reason is that the number of office projects, that tend to have higher job totals and lower investment, have not returned to pre-pandemic levels, and they will look different once they do. Six of the top 10 job announcements in the Charlotte Region in 2019 were office projects, compared to one in 2022. Companies are still figuring out what place-based investments in real estate look like in the office sector as hybrid work has become the norm and the connection between place and employment has weakened.
While the office remains an important part of the plan for many companies, economic development announcements will look different in the future. Companies are taking less office space in response to hybrid work and with some positions being able to be done remotely, it will likely result in lower job announcements in any particular location. That, along with lower job totals for industrial projects, will put downward pressure on announced jobs.
Why does it matter?
Increased capital investment will be a boon for local governments which receive more than 70% of their tax income from property taxes. Three communities in the Charlotte Region have landed projects with more than $1 billion in capital investment over the past 14 months. Microsoft announced $1 billion for four data centers in Catawba County, Eli Lilly announced $1 billion to develop a new manufacturing facility in Cabarrus County, and most recently, Albemarle announced $1.3 billion to develop a “Mega-Flex” Lithium Hydroxide Processing Facility in Chester County. The announcement in Chester County alone is almost equal to the capital investment in all of 2019. These projects, along with the many smaller but still crucial investments, are foundational to local budgets which help fund services like schools, police, and parks. Increased investment in communities will result in higher revenues and more opportunities to provide the services that our current and future residents will enjoy while limiting increases on residential property taxes.
At the same time, if announcements moving forward tend to concentrate more investment and fewer jobs, it may have implications for incentive policies. Incentive policies at the local level in the Charlotte Region tend to be based on property tax revenue while state incentives are based on employment. If projects continue to move towards more capital investment and fewer jobs, the competitiveness of incentive packages will be more dependent on local policies rather than state. Local incentive policies that are competitive for projects while still creating revenue for the community, one of the ultimate goals of economic development, will be more crucial than ever.
