Caterpillar Coming to North Carolina, But Nearly $1 Million Capex Per Job

Caterpillar is expanding production capacity across the world right now. And it's bypassing its usual midwestern locations for the south and Texas. However, like many other manufacturers, it is now spending close to a million dollars for every new job created.

Its new axle facility in Winston-Salem, NC will require $426 million of capex, and is expected to produce 500 jobs across the 850,000 square foot site. Average wages are expected to be $40,500 plus benefits once the facility opens in 2012. This means about $22 million in new non-benefit wages a year. Therefore, with inflation it will likely take at least 15 years until the company's outlays for manufacturing wages match what it will spend building the plant.

Michigan Factory Employment Down 450,000 Over the Last 10 Years

While Obama, Biden, and the Queen of Economic Disaster Jennifer Granholm attend ribbon cutting ceremonies for factories that will employ a few hundred, Michigan has lost manufacturing jobs by the hundreds of thousands. An interesting article at MLive.com highlights how many of the new "advanced manufacturing" jobs are simply coming in a too slow a pace to dent the unemployment rate. Rick Haglund, the author of the story, writes:

While advanced manufacturing is important to Michigan's economy, it's not likely to produce more than about 10 percent of the state's total jobs.

This is tied to the challenge I've written about here of capex per job created rising faster than inflation. It wasn't in Michigan, but when Toyota built its Princeton, Indiana plant in 1998, it needed $350,000 in up front capital outlays per operating job created. But it's new Prius plant in Blue Springs, Mississippi will need $650,000 of capital investment per job created.

The solution is not some clever educational program or to attract "creative" workers. But rather to cultivate industries, like wind turbine production, where manufacturing is far more labor-intensive, and requires less than $200,000 in capex per operating job created.

Big Economic Development Win for Greenville/Spartanburg Region

Big win for Laurens County, SC, which is about 30 minutes south of Greenville, SC, with the ZF Group announcing a $350 million plant where the German manufacturer will produce auto transmissions. One of the company's largest customers, BMW, has a facility nearby in Spartanburg.

One of the most interesting aspects of this new plant is the level of employment it will support per capital dollar invested. It's expected to create 900 jobs once it's fully up and running, or one job for every $390,000 of capital invested. This is fairly labor-intensive for modern manufacturing, and quite a bit lower than the $650,000 of capital Toyota will spend for every job it creates at its new Corolla and Prius plant in Blue Springs, Mississippi. It's also far more jobs per capital dollar than the Dow Kokam battery plant in Midland, Michigan, which Joe Biden and Jennifer Granholm have been treating like an economic savior, yet will only create one operational job for every $1 million of capital invested. The ZF plant will need more than 2.5x as many workers per dollar invested than that heavily publicized battery plant.

South Carolina, which has struggled during the recession, has also stayed focused. There haven't been any silly "cool cities" campaigns in Columbia, Greenville, or Charleston, and it's continued to recruit manufacturers, and not fallen for any of the creative city Richard Florida hype. In addition, it's now putting together supply chains of one producer selling to another, which is far more sustainable economically than creating yet another "urban artists neighborhood".

What Makes a City Cool? Not Telling Everyone You're Cool

Grand Rapids should really benefit from Jennifer Granholm's departure. Another "are we cool enough?" debate has broken out on the Grand Rapids Press website, after an article in its horribly named "Michigan 10.0" series started pondering Western Michigan's ability to be cool. It was followed with a story about ArtPrize, a local arts event, written in the context of making Grand Rapids a destination for the "creative class". It has also re-ignited debate on the website's message boards about how to build the local economy.

I say at this point, Grand Rapids is descending from sounding like a foolish place that actually listens to Richard Florida's bullshit, to one that sounds like a wannabe Jeff Spicoli. When you can't showcase local art without wondering if that makes you a cool city, you might as well just have the mayor skateboard around town asking 18-29 year olds if they're 420 friendly.

Grand Rapids, please stop. I've never advocated book burning, but if that's what it takes, create a bonfire with all the copies of "The Creative Class" you should be torching. Other industrial cities are looking at ways to rebuild their economies, and in spite of tremendous challenges, you don't see Youngstown acting like a 15 year old who can't make the cheerleading squad.

Microsoft Opening Data Center near Des Moines - $4 Million Capital Outlay Per Job

Microsoft is moving forward now with a $100 million data center near Des Moines, which will create 25 ongoing jobs. Data centers are known to be very light on new job creation outside of construction.

At $4 million per permanent job, this is about a quarter of most modern manufacturing plants, which are coming in around $1 million of capital expenditures per recurring job. But it's also about ten times more labor-intensive than a wind farm, where it typically takes about $30-$40 million in capital to produce a single job.

New Chattanooga Factory to Create Massive Turbines, but Few Jobs

GE competitor Alstom is building a plant in Chattanooga that will manufacture large, 700-1800 Megawatt, steam and gas turbines for electric power plants.  The facility will require 350 full-time workers once it goes in service, as well as $300 million in capital investment, or about $850,000 per job.    This is about 30% higher than the state-of-the-art auto factory Toyota's building in Blue Springs, Mississippi, but reflects the trend in manufacturing of spending more and more on construction, and needing fewer people once the plant is in service.  

In a future post, I'll lay this out in detail, but the capital cost per job created in most manufacturing sectors is rising much faster than inflation, which means if you recruit manufacturing facilities, much of the economic impact is front-loaded.   It also means you need a limited supply of skilled labor, because even with an existing presence in the Chattanooga area, this plant won't be enough to put Alstom in the top 15 employers in that city, which is attractive to turbine makers because of the large Tennessee Valley Authority facility there.

The usual chants about educated labor and multiplier effects came up with the plant's announcement, but with just 350 people, it's not like they'll  need an army of electrical or mechanical engineers.   And with Alstom being a foreign company, many of the profits will be going to France, not recirculated in the region.   In all, the plant's certainly a good thing for Chattanooga, but the economic impact is likely to be far less than many are hoping.

Toyota Restarting Construction on Mississippi Plant - $650,000 in capital costs per job

After halting work when the economy crashed in 2008, Toyota is resuming work on its $1.3 billion Corolla and Prius plant in Blue Springs, MS, which is near Tupelo, and about 90 minutes southeast of Memphis. In addition to right-to-work laws, one reason it chose Blue Springs over its now closed Fremont, CA plant is access to parts suppliers in the nearby I-20 corridor, which has become a modern version of Detroit.

With 2,000 employees on-site and $1.3 billion in capital needed to build the plant, it'll be spending $650,000 in capital per job created. A little less than the $1 million in capital per new job Dow Kokam will be spending on its new Michigan battery plant, but a strong indication nonetheless of how modern manufacturing often creates more economic activity in construction than in production.