William Blair energy and environmental services analyst Tim Mulrooney and macro analyst Richard de Chazal explore how reshoring, AI infrastructure, and labor and energy challenges are driving transformation across the U.S. economy.

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Podcast Transcript

Richard de Chazal
Hi, everyone. It's October 8th, 2025. Welcome to another edition of William Blair Thinking Presents. Today, I have with me our analyst Tim Mulrooney, who is on the Energy and Environmental Services team, and Tim has released a recent report on reshoring and AI infrastructure. So today we're going to delve into that report, and discuss, you know, a few things around the, the labor market.

00:39
Tim Mulrooney
Oh, it's great to talk to you, Richard.

00:40
Richard de Chazal
I think the first question I really want to ask today is, you know, you talk about, reshoring. I guess one of the big questions I get from clients is reshoring.

Is it actually happening? It's kind of hard to measure. There aren't really any great reshoring indices that we sort of track over time. And what kind of constitutes reshoring? If a company sort of decides, you know, ‘we're not going to send a batch of, you know, business to India to produce there and just maintain these workers here.’

Is that, sort of, reshoring or is it really strictly returning those jobs that were offshore, back onshore? So, I mean, how do you think about that? And, what do you think we are actually seeing on the reshoring side of things?

01:31
Tim Mulrooney
Yeah. Good question. It is difficult to measure, and I think you could probably define it a couple of different ways.

We have dug into this issue a lot over the last year and a half, I'd say, as we, initiated coverage on several companies that focus on constructing, manufacturing facilities across the United States. And not just manufacturing, but healthcare, commercial buildings, just basically the infrastructure - building infrastructure- across the United States. And speaking with some of these companies, it was really interesting, I think, because a lot of them were kind of telling us the same things, but in different ways.

But, it created this narrative that was really helpful in thinking about this issue. And, well, I guess I'll just dive right into what that narrative is, which is the following: if you go back over the last 30 years, in their mind, offshoring has been a headwind to their construction business because that's one less facility that you would otherwise be constructing if it's sent overseas.

And, as we saw more and more trade agreements being signed in the 90’s and advancements in shipping technology, IT, other things… it just became easier to send not just the jobs but the infrastructure overseas. And that was the headwind to their businesses. And that headwind, according to several of these companies who are, I would say, the largest companies in the U.S. that do this, they said that the headwind was most acute in the 2000’s. And I think that that was probably when we saw, yeah, when we saw the offshoring reach peak levels trying to enter the WTO, failure in that decade, other things as well. But, the interesting thing is what both of the largest companies said, independently, and during our conversations, was that that headwind had largely dissipated.

In other words, it was no longer a headwind by 2017…2018. And why I think that that's interesting is because that was before Covid. That was before we realized that our supply chains were very efficient, but very fragile, and we needed to bring some home. It was before the IIJA and the CHIPS Act and all that infrastructure.

Yeah, it was before the tariffs and the “Buy American,” and it was before all of that. And, so, we asked why. And, again, they both kind of had the similar answer which was ‘well, we basically think we had reached America. We, you know, the United States had reached peak outsourcing, peak offshoring. We had sent abroad everything that we possibly could.

We had penetrated that. And it, now, was coming the other way. So, everything that we've seen since from trying to bolster our supply chains and make them anti-fragile, so to speak, the investments in the U.S., the tariffs, the “Buy American,” all of that is simply exacerbating a trend that was already underway.’

05:00
Richard de Chazal
Hmm. So, sort of the icing on the cake?

05:03
Tim Mulrooney
That's right.

05:04
Richard de Chazal
Right. And is there, you've found, companies worried about skills shortages here and, sort of, a mismatch of what skills say everyone's complaining about too many students coming out with liberal arts degrees and not enough degrees in plumbing, or in engineering, or things, that kind of do stuff? Has that been a headwind for some of these companies?

05:34
Tim Mulrooney
I think it has. And, but, I was surprised by some of the conclusions that we came to in the research. When we started down this path of doing work on these companies, I already had that section of the report written in my head before I had done any research. I, in my mind, there was a massive shortage of blue-collar workers because millennials, you know, we want to go, ‘yeah, we want to go to college.

We don't want to work with our hands like our parents did. We don't want to go swing hammers and be under sinks fixing things. And, you know, you can Google “electrician shortage right now” and the first ten hits will be all about the massive shortage of electricians in the United States, backed up by data.

But, what we found in the data, when you really parse through it, is that the average age for a lot of these roles is, and what I mean by that “killed labor” is plumbers, electricians, pipe fitters, welders, specialty welders, and there are shortages. But the average age, for the most part, is not that dissimilar from the average age of many other jobs in the United States.

I wrote a report a couple of years ago on the nursing shortage. And there, the discrepancy was very obvious. Here? Not so much, actually. It seems as though there wasn't a major shortage like I thought there would be. And the shortage that we're all reading about, because everyone's struggling to find the workers to build these projects, you know, the next data center, the next semiconductor, manufacturing... So, they are hard to find. We think that shortage is coming more from the demand-side, necessarily, than the supply-side.

07:32
Richard de Chazal
So, the shortage of labor is more driven by the demand-side, rather than supply side recovery?

07:39
Tim Mulrooney
That is that is what we think. We think the significant increase in revenue that we've seen at these, what we call MEP contractors, mechanical, electrical, plumbing contractors, the revenue has accelerated so fast in between 2021 and 2024, which is the last fiscal year for which we had data, combined with the fact that the average age of a lot of these employees is similar to your average teacher, or your average mechanic, or, you know, your average engineer, you know.

Those two facts combined makes us think, ‘yes, it's coming more from the demand-side.’ Now, that's not to say that it won't be a major issue shortage issue in the future, particularly if this reshoring trend continues. But, as it stands right now, we do.

But that is how we're thinking about it, which surprised me.

08:26
Richard de Chazal
Yeah, I mean, that's, I mean, that's a big deal for the Fed, really. The way they're thinking about that.

08:33
Tim Mulrooney
How so?

08:33
Richard de Chazal
I mean, so the Fed is sort of saying it's both the supply and demand-side issue, and they're both kind of coming down. But, you know, from an inflation perspective, if it's more on the demand-side, you know, that's quite disinflationary or potentially deflationary, which means there's a lot more room for rates to go lower.

If it's more on the supply-side, that's potentially a little the opposite, potentially a little bit more inflationary, could have more significant implications for inflation. And then there's maybe less room for rates to come down. So, interesting you put it that way.

09:16
Tim Mulrooney
That is really interesting. And in case, you know, I'm sure the Fed is watching this.

So, just in case they are, I just want to, maybe, add a couple more data points to that. So, these companies are seeing major shortages in areas where there aren't skills, where you don't have the licenses and the apprenticeships before you become the journeyman. Those would be painters or insulators.

Most of the companies we speak with are seeing significant shortages in these areas, right? And, that it is a supply-side thing, for sure.

09:54
Richard de Chazal
Have you seen, so obviously immigration is a big topic today and the construction industry, you know, I think it's has the largest percentage of undocumented workers working in that industry. You know, have you got a sense that that is being a major headwind for the industry?

Does it feel like we've seen a lot of complaints about, maybe no one's vocally complaining about that, but maybe, you know, you're hearing more about from your companies?

10:25
Tim Mulrooney
Most of, well, all of my companies, because they're publicly traded on the exchanges, will be using an E-Verify system and will be availing themselves of the H-2B visa programs. So, you know, a landscaper, for example, company that I cover a bit, actually quite a few companies I cover, I use a little bit of that in certain situations. And, so, less directly affected by the immigration policies relative to something like the construction industry. But they are affected in two ways. For example, I cover companies in the commercial cleaning janitorial space, and while they definitely use E-Verify, they're seeing a little bit more wage inflation right now because a lot of their competitors don't.

And, obviously, you know, it's going to impact the whole industry. And, you know, that means their employees are going to go to those places that pay more money. It just, it just drives costs a little bit higher, I think. And the second way is, uh, what I'm more worried about, I think, and one of the companies that I work with, they, I would say 50% of their business is more on the design build side.

And they've said that there have been times over the last six months where they've shown up to the project as a subcontractor. And, there was no one there because no one showed up to do the work that day. Because, even though maybe, say, 30% of the workers were undocumented, maybe they couldn't get the work done without that 30%.

Or maybe everyone was scared to go. It has driven delays more on the design build construction side versus the services side or the side where you have skilled labor.

12:27
Richard de Chazal
So, maybe let's pivot a bit to the energy side. Because in your report, you note that you think we're on the cusp of a super cycle in energy, and that's being driven by reshoring and AI. Maybe could you, sort of, talk about how you think that's playing out?

And, you know, I think one of the biggest fears we're seeing is you're reading about all these data centers and how energy hungry they are, and, you know, they're being put in these parts of the U.S. or even in the UK, or that they're going to suck all the energy for the thousands of homes around there, and all our energy bills are going to spike.

Anything helpful to say there that suggests maybe that's not going to happen, or how should we be?

13:14
Tim Mulrooney
I wish I had better news for you. But, I think that this is, so, basically when folks look at the subcontractors that I cover, you know, the stocks have done really well over the last several years and they say, ‘well, what's going to cause the stocks to roll over?’

And there's two primary risks that are listed. One of them is, like, another deep seek event, which I actually don't think is the case. We have a lot of history to show that when you have an increase in efficiency in something, like miles per gallon, you don't drive less. There's more miles driven. And so, you know, I think another deep seek type event would just increase investments, ultimately. It might cause a slight dislocation.

But, I'm not nearly as worried about that as I am the limitations from our grid. I actually think that two to three years from now, this is going to be a major issue. A couple interesting things in speaking with these companies, we've seen massive growth. One of them, they've seen growth broadly due to the reshoring team, hospitals, GLP-1 manufacturing, water, wastewater infrastructure from the IIJA, lots of different things.

But, that's where revenues going from, say, you know, 300 million in 2021 to 400 million in 2024. Pretty good for any one of those categories, right? Pretty good. 30% over three years. But, the revenue for data centers has gone from 300 million 2021 to 2.2 billion 2021. It’s just, there's just no comparison. Like, this is what is driving the growth.

And, I don't see that slowing down. One of my buddies runs the data center practice for a large real estate company, and it's his job to go and find tracts of land that could potentially be used for data centers. And then they have to do the power study and all that stuff. And then if it works, then they'll sell it to a colocater or maybe one of the hyperscalers.

But, you know, the things that he's doing right now to find available power are mind blowing. You have to get really creative to find stranded power. So, we're already at that point where we're looking for stranded power because the new power isn't going to be available for several years from now. And so, yeah, I do worry that the amount of data centers that we're planning to build over the next five years, we don't have the energy for that.

And that will end up being the bottleneck. Maybe we can get creative, maybe there will be efficiency gains. But, I'm not sure that SMR’s are going to be ready by then. In fact, I don't think that they will be. I'm excited about that opportunity, but I think that's a little bit longer. You can't get a natural gas turbine, that's bought out until, what, 2031?

Good luck trying to, you know, get one of those. So, it's going to be difficult. And then, combine that with the fact that, you know, that growth that I was talking about, the data center growth. From 2021 to 2024, these contractors are saying all that growth came from air cooled, cloud-based data center infrastructure.

The liquid cooled infrastructure for AI, dedicated AI infrastructure data centers, they only started building that stuff basically this year.

So, you know, we've all been reading about, you know, AI for a long time now, ever since Open-AI and that's all taken off. But, the infrastructure to support all of that is actually, now, we're really just in inning one of that construction. And, that's going to play out over the next two to three years, regardless of whether or not we see an ROI in AI.

Like, that's pretty much baked in at this point. And it could take off more from that.

17:33
Richard de Chazal
Right. And the liquid cooled versus the air cooled, I mean, what one’s more energy efficient than the other or less energy efficient?

17:42
Tim Mulrooney
Yeah. That's right. Historically, yeah. There's about, I think, about 10,000 data centers globally built up to this point.

The fast, fast, you know, I don't want to give an actual percentage, but I think it's something like more than 95% of them are air cooled. And then the next 5000 that are going to be built, or let's say the next 1000 that are going to be built over the next five years globally, those, the majority of those will be liquid cooled because the chips are getting denser, everything's getting hotter.

We're even trying to get more creative by building more of them in regions of the country that are colder. Because, you know, every little bit helps. We're just trying to get as creative as possible.

18:26
Richard de Chazal
And, I think one of the questions that I get, too, is everything is concentrated on AI and data centers, and are we seeing, you know, wider dispersion coming out of that across other sectors of the economy that are starting to, I guess, maybe kind of a trickledown effect from AI? All those billions that are being dedicated to that, are they trickling to other parts of the economy?

And we're seeing a bigger CapEx cycle taking off there, in part, because of that. But also maybe in part simply because companies need productivity, because of the shortages of labor.

19:06
Tim Mulrooney
Yeah, I definitely think the productivity reaping is real. Data center construction, so we talk about this, a lot, you know, data center construction, we don't see the same tertiary or adjacent effects, as you'd see for, say, a semiconductor manufacturing facility.

If you're building a semiconductor manufacturing facility, that's five gas stations you're adding, and a grocery store, a couple retail stores, you're adding a ton of infrastructure around that. A data center, you know, you can kind of run with three people. So, there's not, we don't see as much stimulative activity associated with the data center.

We do see some, particularly when there's clusters and, there's definitely an impact there. But, that's why I think we're also just more excited about the broad reshoring trend, because it's not just the battery manufacturing plant, or the pharmaceutical manufacturing facility, or the semiconductor manufacturing facility. It's everything else that's built up around that. And hopefully, the additional power infrastructure, that will come, as well.

20:29
Richard de Chazal
So, you cover quite a variety of companies. I mean, pest control to, you know, these AI infrastructure companies and you know, are you seeing, so you, I mean, I think you probably have a good bottom up feel for what's happening in the economy. And you cover even a uniform rental company. You know, are we seeing signs there that the economy’s slowing?

Are they telling us anything? Because, then getting back to the labor force and growth there or softening there, anything you can tell us that they might be seeing or not seeing?

21:04
Tim Mulrooney
Yeah. So, I think the quick and dirty answer is not yet. We're not seeing any slowdown. One company just reported the other day, and they are a uniform rental company, which the, you know, the traditional way to think about that is that they are tied to payrolls.

I mean, it's the number of shirts on backs, literally for a uniform. And we've seen average payrolls go from what, 200,000 a month to zero.

21:25
Richard de Chazal
They’re not quite zero yet.

21:25
Tim Mulrooney
Not quite zero. Thank you. Thank you, Mr. Economist. Yes. But, they've slowed. And their organic growth has not slowed. My pest control companies have, you know, some of them are seeing an increase in their digital marketing costs or their cost to customer acquisition, but they're not seeing a material slowdown in organic growth.

21:59
Tim Mulrooney
They're just not. Some companies on the design build side saw a slowdown in March, April, May, more, April, May and June. We think that that was, well, almost definitely tariff-related. But, they've made comments, we've had a couple of those CEO’s on the road lately that, you know, they think the worst of that is behind them.

And they're actually looking towards growth as we move into the latter half of the year. So, I'm hopeful that, you know, even though we are seeing some mixed data on the macro side, certainly, you know, that that our companies can continue to grow through that.

22:43
Richard de Chazal
I mean, you mentioned tariffs, you know, is that the consensus that they sort of think that they've absorbed the head?

I mean, are they still searching for ways to mitigate those tariffs? Or, is there a consensus amongst your companies of how they're dealing with that or frustrated by them or?

23:02
Tim Mulrooney
Yeah. There's a level of frustration around some of them. But, I think the general reaction when I ask them about tariffs in October of 2025 is to roll their eyes at me.

I think that they want to be done talking about it, honestly.

23:24
Richard de Chazal
But are they passing on price increases? Costs?

23:24
Tim Mulrooney
So, the way the larger companies talk about it is, its three things. We are and always have been, and certainly since COVID, are multi-sourced on everything that we buy.

And, so, yeah, they're pitting suppliers against each other and saying look we have other options. So, you're going to have to share in this tariff with us to a certain degree. The second thing they're doing is raising prices. They've already shared some with their suppliers, so they don't have to pass on the full thing to their customers, but they'll maybe pass on a little bit to their customers. The other thing that they do is they try to make sure that they're sourcing directly in the countries that they're operating within.

24:22
Tim Mulrooney
There’s one large cleaning and sanitation company that they buy a lot of chemicals that they use in their operations. But they always like to remind us that, you know, they source 90% in country, so there's only 10% exposure to begin with to the tariff. And then lastly, there are other companies that buy things, like the uniform rental companies, for example.

24:45
Tim Mulrooney
I cover three of them. About 30% of their cogs are material costs for the uniform, or towels or mats,

24:45
Richard de Chazal
And they probably aren’t made in the States.

24:45
Tim Mulrooney
Definitely not made in the States. And, I was most worried about them. However, they amortize their garments and other materials over 18 to 24 months, so the impact from the tariff would be one eighteenth in one month and then two eighteenths in the second month.

And by the time you're hitting six eighteenths or seven eighteenths, where we are right now, they've figured out how to negotiate with suppliers and pass on to customers. Yeah, for the most part, I think they just want the certainty that there's not going to be any more major surprises from here. And they're feeling just fine on tariffs.

25:32
Richard de Chazal
Great. Well, I think that's probably all we have time for today. So, thank you very much, Tim, for joining us. And I appreciate everything you had to say.

25:42
Tim Mulrooney
All right. I look forward to doing it again, Richard. Thank you.