The Benefits of Infrastructure Spending

Months of horse-trading remain before a legislative package on infrastructure comes out of Capitol Hill, but we’re already hard at work analyzing what it could mean for numerous market sectors. Director of Research Jeff DeMaso explained how infrastructure spending casts a wide net in our recent webinar,* Inflation, Inoculation and Infrastructure: Defining the New Normal.

Please enjoy the excerpt below and click here for the full webinar replay to hear more. 

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Jeff DeMaso:

Infrastructure spending has dual benefits. One, it’s going to help create jobs today and two, it can pave the way towards future economic growth and activity for the years to come. Now, if you ask most people, they will say that they support an infrastructure bill. Who doesn’t want better roads, safer bridges, faster internet, all of that? I’m sure you’ve all heard the stats around our crumbling infrastructure. They’re endless.

The U.S. has over 50,000 bridges that are structurally deficient, and at an average age of 67 years. Again, most people agree with the idea of an infrastructure bill. Where the disagreement comes in is, how do we pay for it? Make no mistake, an infrastructure plan or bill will be expensive. This graphic broadly lays out the president’s plan. It’s clocking in around $2 trillion and takes a pretty broad definition of what infrastructure is. Now, there’s going to be a lot of politicking around this bill. We don’t know exactly what it’s going to look like. But the question remains, how do we pay for it? Do we issue debt? Do we raise taxes? The most likely outcome is a bit of both, but make no mistake, whether we decide to build new infrastructure or not, we are paying for something.

To give just one example, it’s estimated that driving on deficient roads cost the average Massachusetts driver $620 a year. That’s in repair bills, being stuck in traffic, and so on. Now, it’s going to vary by state. Some are going to be higher or lower, but the bottom line is the same. We can keep paying a price for our poor infrastructure or we can invest in our infrastructure, we can create jobs in the process, and we can improve our ability to grow in the years ahead.

To bring this back to the market as well, a common question that I get around infrastructure is, okay, if we’re going to do an infrastructure bill, what sector of the market should I invest in? I don’t have the most satisfying answer to that, in part because the market usually does a good job of pricing these things in.

You might think that industrial stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. would benefit from increasing infrastructure spending, but industrial stocks have been among the best sectors over the past three and six months, so maybe that’s kind of priced in.

Additionally, if this infrastructure bill creates more jobs, as I suggest it will, that in turn creates more consumers, which in turn is good for our overall economy, so an infrastructure bill could benefit the market at large, not just a narrow sector.

We could also look at some sectors that you might not think would benefit, like technology. How would that benefit from infrastructure spending? Well, if we improve our broadband or expand the access to the internet, then are we creating more consumers of technology of Apple products, of Microsoft products? Again, the idea that it’s going to benefit just one sector is a little too narrow. An infrastructure bill could benefit more than just one part of the market, and really the whole market at large.

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Click here for a replay of Inflation, Inoculation and Infrastructure: Defining the New Normal. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.