The 2022 IRA and CHIPS Act have pumped billions into programmes to spur new investment in green energy and new manufacturing. In new research, Omar Barbiero examines how spending on semiconductor and green energy facilities affects overall investment, employment and growth. He estimates that this spending accounts for 10 percent of the growth in real investment and has helped create tens of thousands of jobs.
Real investment—spending on construction other than housing, manufacturing equipment, and intellectual property products (IPP)—in the United States has grown substantially over the last few years despite the high-interest-rate environment that emerged in 2022 and is only now beginning to subside. The current strength of investment is important to policymakers because its sensitivity to interest rates makes it a key channel through which the Federal Reserve can influence the economy and because real private domestic investment makes up 15 percent of US real GDP.
Since 2023, real investment has been boosted by spending in the semiconductor and green-energy industries that may have been spurred by the passage, in 2022, of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act and the Inflation Reduction Act (IRA). Real investment in the US semiconductor industry is projected to reach at least $356 billion in the six years to 2028, and real investment in US green energy is projected to total at least $102 billion over that period. These estimates are conservative because they do not include additional spending that likely is and will continue to be substantial, such as on research and development.
In new research, I analyze how spending on the construction of, and equipment for, semiconductor and green energy manufacturing facilities will affect aggregate real investment, employment, and GDP. I find that in 2023, investment in the construction of semiconductor and green energy manufacturing facilities was responsible for one-third of the recent growth in investment in structures (outside of housing) and accounted for 10 percent of the growth in aggregate real investment (spending on manufacturing equipment and IPP as well as non-housing structures). For 2024, projected spending on semiconductor and green energy manufacturing equipment will account for an estimated 15 percent of real investment growth. Employment growth, particularly in the green energy sector, is also expected to increase as the manufacturing facilities become operational.
The potential impact of the CHIPS Act and IRA
US spending on consumer goods and services remained surprisingly resilient following the onset of the COVID-19 pandemic, and the continued resilience of investment has been even more surprising. As Figure 1 shows, average quarterly real investment growth since early 2020 (seven percent) has been slightly faster than it was in each of the previous two decades (4.3 percent from 2000 to 2010 and 5.5 percent from 2010 to 2020). This is unexpected given the tight monetary policy environment and how elevated real interest rates result in a higher cost of capital, which is typically associated with a decrease in real private investment.
Figure 1 – Real nonresidential investment growth
Growth in investment in manufacturing construction—the building of production facilities and other nonresidential structures—over the past three years has been particularly striking. According to the US Census Bureau, private manufacturing construction spending grew from $79 billion in June 2021 to $236 billion in June 2024 (equivalent to 44 percent annualized growth). Numerous reports suggest that fiscal and industrial policies are playing a major role in this boom.
Since 2021, the US government has implemented several measures to bolster domestic investment in semiconductors and green energy, including tax credits, tariffs, export control bans, and the issuance of loans and other funding means. Most notable among these measures are the CHIPS and Science Act and the IRA, both of which were signed into law in August 2022. The CHIPS and Science Act allocates $52.7 billion to finance a 25 percent tax credit on investments in new manufacturing facilities primarily but also to fund grants, loans, and research. The IRA dedicates $369 billion over the next decade to incentivize domestic investment in green energy. It targets the supply through tax credits for producers (of solar or wind energy, for example), manufacturers (of inverters, battery components, etc.), and miners (of critical minerals). In addition, the act targets the demand side through tax credits for businesses or households that produce or use clean energy or energy-efficient systems.
Assessing the effects of semiconductor and green energy projects on real investment
I assess the historical and potential contributions of the semiconductor and green energy projects to aggregate real investment using data on plans for major manufacturing-facility construction projects in those industries. The projects were announced over the period of August 2022—when the two laws went into effect—through July 2024.
I drew on two data sources to track those announcements. The announcements of new semiconductor plants came from an aggregator website, jackconness.com. I verified the information and updated it as needed to account for delays or project expansions. The green energy manufacturing data came from The Big Green Machine, a repository created by Jay Turner, a professor of environmental studies at Wellesley College. The Big Green Machine data set aggregates regulatory filings, government reports, media coverage, and other publicly available information detailing project locations, investment forecasts, employment projections, and more.
“P20230328CS-0291” by The White House is United States government work
Manufacturing investment grew substantially in 2023 and has been projected to remain strong through 2024
Figure 2 breaks down quarterly growth in real investment in nonresidential structures into semiconductor investment announced since the enactment of the CHIPS Act, green energy investment announced since the enactment of the IRA, residual investment in the computer, electronics, and electrical manufacturing sector (that is, investment in that sector not explained by the announced spending on semiconductor and green energy projects used in this study), and investment in other sectors. In 2023, total annual investment in nonresidential structures grew 10 percent, and semiconductor and green energy investment contributed one-third (3.3 percentage points) of that growth. As noted earlier, aggregate real investment (overall spending on nonresidential structures plus manufacturing equipment, and IPP) grew 6 percent in 2023, and semiconductor and green energy investment accounted for 10 percent (0.6 percentage point) of that growth.
Figure 2 – Growth contribution in real investment: structures
For context, before the pandemic, the entire computer, electronics, and electrical manufacturing sector — of which semiconductors and green energy are subsectors —accounted for, on average, less than two percent of total nonresidential structure spending, and its contribution to annual growth in aggregate real investment was, on average, 10 times less than what we observe for 2023. Spending on nonresidential structures in the semiconductor and green energy sectors is expected to continue contributing to growth in aggregate real investment through the end of 2024, but to a lesser degree than in 2023.
Figure 3 separates monthly growth in manufacturing equipment investment into the contributions from the semiconductor, green energy, and other sectors. Because much of the equipment used in those sectors is imported, the figure accounts for the net effect of imported capital goods on equipment investment growth, providing a clearer view of domestic contributions to GDP. The contribution of semiconductor and green energy manufacturing equipment spending to growth in aggregate real investment was modest in 2023, but I project an additional four percentage point growth in annual net equipment investment for 2024. That spending will contribute an estimated 15 percent (0.6 percentage point) of the growth in aggregate real investment in 2024, which I project will be four percent by assuming that the average quarterly growth observed in the first two quarters of the year will continue.
Figure 3 – Growth contribution in real investment: Equipment net of capital imports
Effects on employment
In addition to contributing to real investment, new and expanded semiconductor and green energy manufacturing plants are expected to make a notable impact on employment, despite the relatively small size of those industries. Based on the announced plans for major manufacturing-facility construction projects, I estimate that these investments will create, on average, an additional 6,000 jobs monthly in 2024 and 4,000 in 2025 (Figure 4). According to the US Bureau of Labor Statistics Employment Situation Summary, those totals are equivalent to one to two percent of the national monthly average of new jobs for 2023. The entire computer, electronics, and electrical manufacturing sector employed less than one percent of all US nonfarm workers in 2019.
Figure 4 – New imputed target jobs
- According to the announcements, the green energy sector will provide a much larger employment boost compared with the semiconductor industry due to its lower investment-to-employment ratio: about $1 million per employee versus about $3 million per employee. Additionally, the announced green energy manufacturing facilities are expected to become operational sooner than semiconductor plants.
While the semiconductor and green energy projects announced since the enactment of the CHIPS Act and the IRA have contributed to the resilience of investment we’ve seen and will continue to contribute in 2024, their impact on US GDP growth remains limited. This is because total real investment represents only 15 percent of US GDP. Therefore, the 0.6 percentage point contribution to aggregate real investment translates to only a 0.1 percentage point contribution to US GDP growth in 2023 and 2024; real GDP growth was 2.9 percent in 2023. However, pre-pandemic (2019) investments in the entire computer, electronics, and electrical manufacturing sector accounted for less than 0.7 percent of US GDP.
Realized numbers may be greater than projections
Several factors suggest that my estimates of the boosts to aggregate real investment and employment from semiconductor and green energy investment understate the impact of the ongoing boom in those sectors. First, the data I use do not capture all new projects, particularly smaller projects and defense-related projects. Second, my estimates do not account for spending on research and development, which likely is and will continue to be significant given how much increased demand and expanded government funding in these sectors could further incentivize businesses to invest in R&D. Third, as Figure 2 shows, residual spending in the computer, electronics, and electrical manufacturing sector continued to rise, contributing one percentage point to the growth in nonresidential structure spending in each quarter from 2023:Q4 through 2024:Q2 even though overall spending weakened (data for 2024:Q3 and beyond are not yet available).
The residual spending data may indicate that other forces, such as demand for artificial intelligence or remote-work tools, are stimulating investment indirectly by requiring an expansion of existing capacity in several sectors to keep up with that demand. Additionally, announced green energy and semiconductor projects typically generate spillovers within and beyond those sectors. The investment boom should benefit not only suppliers of semiconductor and green energy manufacturing plants, but also, indirectly, workers and investors in construction and local services. In the long term, increased income from the investment boom likely will become more difficult to estimate and pin down to a specific sector.
Note that this analysis does not identify the causal effects of the CHIPS and Science Act and IRA on aggregate real investment. The increase in investment does not prove that the manufacturing projects in those sectors would not have materialized without government support. In fact, investment in computer manufacturing facilities and green energy was already growing before 2022. However, the rapid expansion seen in recent years likely reflects the role that targeted policy has played in accelerating the growth of these industries.
- Note: The views expressed herein are solely those of the author and should not be reported as representing the views of the Federal Reserve Bank of Boston, the principals of the Board of Governors, or the Federal Reserve System. They also are not the position of USAPP – American Politics and Policy, nor the London School of Economics.
- This article is based on “Manufacturing Gains from Green Energy and Semiconductor Spending since the CHIPS and Inflation Reduction Acts” from the Federal Reserve Bank of Boston.
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- Note: This article gives the views of the author, and not the position of USAPP – American Politics and Policy, nor the London School of Economics.
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