As the final stretch of the 2016 US presidential election approaches, a number of promises have already been made, including plans to significantly increase federal spending on infrastructure. No matter which candidate you favor, both have taken a strong stance on the need to invest in public works.
Democratic hopeful Hillary Clinton said her infrastructure plan will rival former President Eisenhower’s highway system of the 1950s, and she has committed to spending an additional $275 billion in the first 100 days of her presidency. Republican hopeful Donald Trump has countered with an infrastructure pledge that is over and above Mrs. Clinton’s amount. The House and Senate approved $305 billion for infrastructure improvements in fall 2015.
Promises during any election cycle should be met with skepticism, but if either candidate is able to deliver as promised, funding for roads, bridges, and rail lines will rise significantly for the first time in decades.
What would a return to Eisenhower’s bold vision look like? Dun & Bradstreet economists take a closer look:
A Return to the 1950s
Back in the early 1950s, President Eisenhower was a champion for transportation investment from both an economic and defense strategic viewpoint. After being officially launched in the summer of 1956, the Federal Aid Highway Act raised both real and nominal nondefense investment as a percentage of GDP to the highest levels on record.
Carryovers from the program created highway projects that lasted 35 years and provided stimulus to the overall economy through the form of employment opportunities and investment spending. The legacy of the program has waned in recent years; federal and state gross investment as a share of total GDP has fallen to pre-Eisenhower levels, as seen in Chart 1.
While some may view this as a negative trend or a reflection of increasingly inefficient government, D&B views this as an opportunity for the US to catch up to historical levels. Public investment is a crucial input into GDP, and nondefense federal spending has moderated in its importance and contribution since the 1950s, as explained in Chart 2. While the US has a chance to fill the infrastructure gap, new spending will also create new employment opportunities.
The current ratio of those employed within the construction industry to the overall civilian labor force has improved recently from a multidecade low reached in 2011 (Chart 3). If the ratio returns to a similar historical level set in the 1950s and 1960s, that would result in an additional half-million construction jobs created for the US economy. Peripheral jobs would also be in demand, ranging from civil engineering and architectural jobs to producers and suppliers of concrete and asphalt.
Specific geographic areas that have received poor infrastructure grades will likely receive the most federal attention and funding, according to the American Society of Civil Engineers’ 2013 Report Card for America’s Infrastructure, which is published every four years. Some of the largest investment gaps are in states in the Southeast, Northeast, and West.
But caveats to political posturing remain; state and local municipalities also are required to contribute a large share of the total spending required. State and local municipalities that either have surplus budget balances or are willing to finance infrastructure expansion will likely provide the best opportunities for businesses and those looking for employment.
Historically, large upfront costs for infrastructure are paid for by borrowing or through debt financing by way of the issuance of bonds. Due to the current low-interest rate environment, borrowing has rarely been this attractive before, but much of this opportunity will depend upon the willingness of local municipalities to borrow and fund these projects.
Adam Morehouse is a Macro Analytic Consultant on D&B’s Global Data, Insight & Analytics team. He covers parts of the Asia Pacific region as a contributor to D&B Macro Market/Country Insight Products. He also contributes to D&B’s monthly economic tracker, adding both commentary and analysis. Adam holds a BBA in finance from James Madison University in Harrisonburg, Virginia, and an MBA in financial management from Pace University in New York City.