By: ProcurementIQ Analyst, Sean Windle
Since the beginning of his presidential campaign, Donald Trump has promised that infrastructure spending would be a top priority of his administration. Given the Republican-majorities in Congress and Democrats’ penchant for stimulus spending, the newly sworn-in President Trump should have no problem making good on this campaign promise. While his first 100 days are likely to be consumed by contentious cabinet nominations and repealing the Affordable Care Act, ProcurementIQ expects that renewed infrastructure investment will be part of the president’s 2017 agenda.
An infrastructure spending package would be a boon to developers, especially given that interest rates are still historically low. ProcurementIQ estimates that total construction spending has been rising strongly at an estimated annualized rate of 6.1% during the past three years; however, growth has not been equitable across the construction sector. While residential building activity has been strong, private nonresidential construction has faltered, declining at an estimated annualized rate of 0.03% from 2014 to 2017. Utility construction has fared worse, declining at an annualized rate of 2.1% during the same period, according to ProcurementIQ estimates. Because infrastructure encompasses roads, bridges, railroads, power plants, communication lines, wastewater treatment facilities and other nonresidential and utility buildings and structures, an infrastructure spending package would target the specific areas of the building sector in need of a resurgence.
A renewed focus and investment in US infrastructure would have a tremendous impact on demand for a number of different building materials and services. In particular, demand for cement and construction aggregates would strengthen because these materials are primary inputs in concrete and asphalt, of which most highways, streets and bridges are composed. Moreover, demand for sheet metal and nonelectric iron and steel wire used in the construction of commercial office towers and other nonresidential buildings would climb. Demand for construction-related services would also increase, including building site preparation services and construction project management services. Excavators, front-end loaders, portable concrete mixers and other heavy-duty construction machinery would also be in greater demand with the passage of a major infrastructure-spending bill.
While details are scant, President Trump has expressed his desire to utilize the private sector for the majority of funding. Under this setup, financial incentives would be offered to private companies that want to fund infrastructure projects, such as federal tax credits and the ability for developers to recover expenditures through tolls, state payments and other mechanisms. One proposal floated by Trump’s incoming commerce secretary, Wilbur Ross, calls for $137 billion in federal tax credits, which the president says would spur $1 trillion in private investment over the next 10 years. Additionally, the Trump Administration has expressed tepid support for direct federal spending.
If a new federal infrastructure-spending bill does indeed pass Congress and is signed into law by the president, it will provide a great opportunity for developers to lower project costs by utilizing tax credits and other incentives, as well as current low interest rates. Although the prices of building materials and related services would rise in response to the flurry of additional construction activity, tax credits, federal funds and other perks would offset these additional costs.