Ever since that fateful Tuesday in November, economists, among others, have been puzzling over what the election results mean for various U.S. public policies and economic performance. President Trump has indicated he will slash taxes, strong-arm U.S. trading partners, end commitments to follow certain environmental rules, dramatically alter immigration policy, partially deregulate banking and make drilling for oil easier. The construction industry is also poised for a new infrastructure-led stimulus package and significant changes to America’s health insurance system.
Trump has suggested that these moves will help turbocharge the economy, which has failed to expand at a 3 percent pace or better since 2005. Many economists certainly have expressed skepticism regarding the wisdom of this package of economic measures, indicating that such policy shifts could spike the national debt, ignite trade wars and accelerate inflation.
Perhaps, but over the near term, the U.S. economy is about to enjoy added stimulus at a time when full employment already approaches. The expected stimulus will likely push prospective economic weakness back to 2019, 2020 or beyond, but when the next recession arrives, it may be much deeper than it otherwise would have been.
Among the major prospective winners are transportation engineers, consultants and road builders. Despite President Obama’s passage of the Fixing America’s Surface Transportation (FAST) Act on Dec. 4, 2015, few data indicate a major ramp-up in highway and street spending. This represents the first federal law in more than a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment. The act authorizes $305 billion from FY2016-FY2020 for highway, motor vehicle safety, public transportation, rail, research and other endeavors over the subsequent five years.
This was supposed to trigger a meaningful uptick in highway and street construction spending. Perhaps it will eventually, but it has yet to transpire. In October 2016, highway and street construction spending totaled $91.731 billion on a seasonally adjusted, annualized rate basis. During the same month one year ago, spending totaled $91.352 billion, which means that highway and construction spending expanded by just 0.4 percent during that 12-month period—hardly blockbuster growth.
Earlier in 2016, Obama put forth a budget that included nearly $100 billion for the Department of Transportation. However, much of this funding is to be directed toward the outgoing administration’s proposed 21st Century Clean Transportation initiative. President Obama’s plan “would increase American investments in clean transportation infrastructure by roughly 50 percent,” according to a White House fact sheet. The primary goal is to reduce greenhouse gas emissions and slow climate change. The plan “would make public investments and create incentives for private sector innovation to reduce our reliance on oil and cut carbon pollution from our transportation sector, which today accounts for nearly 30 percent of U.S. greenhouse gas emissions.”
The implication is that the Obama administration was not particularly inclined to invest in existing transportation technologies, including roads. This helps explain the soft growth in highway/street construction spending.
The Trump administration is likely to be significantly different. Real estate developers understand better than most the importance of infrastructure in terms of spurring productivity, enhancing property values and generating wealth.
In a 10-page white paper posted on his campaign website, Trump makes private financing a cornerstone of his $1 trillion transportation plan. By offering $130 billion in federal tax credits to private investors who back infrastructure projects, Trump envisions public-private partnerships as representing the key to building and maintaining the nation’s infrastructure. That sounds promising, but will of course require congressional sanction and will be scrutinized from the perspective of budgetary impact.
Consistent with some of the policy considerations embodied by the FAST Act, Trump seeks to assault the red tape that plagues large-scale capital projects, ultimately drives costs higher and pushes project timetables into the future. Trump has stated he believes that reforms will pay for themselves. Additional economic activity will translate into higher tax collections, producing more than full offsets to the budgetary impacts of tax credits. Undoubtedly, federal budget analysts and those who work at think tanks will generate their own opinions.
Stepping away from campaign promises and political conjecture, 2017 should be a decent year for the transportation
construction market, with the best years for spending growth still ahead.
Trump wasn’t the only winner at the polls this past November. According to the American Road & Transportation Builders Association (ARTBA
), 24 states approved more than 265 transportation funding measures totaling more than $200 billion.
Those who work in highway and street construction should remain guarded regarding the longer-term outlook. Though many are thrilled by the notion of tax cuts and stimulus, these policies are likely to expand Americans’ deficits and debt more quickly during the years ahead. If U.S. economic growth does not pick up significantly and sustainably in response to the investments to come, the implications for long-term highway and street construction spending are not altogether positive.
Anirban Basu is chief economist for Associated Builders and Contractors. For more information, visit abc.org/economics.