Is Infrastructure construction spending near all-time lows? This question is raised because I saw comments to this affect recently posted on a major national construction professional organization twitter feed.
First, this raises several other questions:
- Exactly what construction markets are being referenced as infrastructure?
- Does this reference include public work only, or both public and private?
- Are educational and health care being included as infrastructure?
- Does this reference constant inflation adjusted spending?
The construction markets typically referred to as infrastructure, in order of largest to least volume, include; Power, Highway, Transportation, Sewage/Waste Water, Communications, Water Supply and Conservation. Sometimes also considered are Educational (3rd after Highway), Healthcare (after Transportation) and Public Safety (2nd smallest).
If only public work is included, everything changes. Most (90%+) of Power spending is private, so it represents less than 3% of public work. The largest contributors in this case are: Highway (32% of public work), Educational (25%), Transportation (11%), Sewage (8%) and Water Supply (4%). No other market is greater than 3% of public work.
And finally, is the reference to current dollars as originally spent within each year, or to constant inflation adjusted dollars, adjusting all historical expenditures to constant 2017 dollars? Any comparison to determine if real growth has occurred should be in constant dollars, in this case all adjusted to 2017.
Typical infrastructure, not including educational, healthcare or public safety, but including all public and private sector work produces this result:
However, the most likely reference is to typical public infrastructure, not including educational, healthcare or public safety. This scenario includes only the public sector work of typical infrastructure and eliminates private spending. This eliminates 90%+ of all power work, 30% of transportation and 100% of communications, in total, more than $100 billion in current dollars. This is the result:
In both instances, the lows, whether using current or constant dollars, occurred between 1993 and 2004. The highs are recent, all occurring from 2007 to 2016. 2017 spending dropped somewhat from 2016, but this is still prone to revision, which is always up.
To answer the question, Is Infrastructure construction spending near all-time lows? NO! Infrastructure construction spending is not at or even near all-time lows. Public sector infrastructure is lower than All infrastructure, but All infrastructure is not even near recent lows. It is near all-time highs!
Infrastructure construction spending in June-August dropped to the lowest since November 2014. However, this was not unexpected. Cash flow models of infrastructure starts from the last several years show monthly spending dips and peaks. Current dips in spending are being caused by uneven project closeouts from several years ago. The actual current backlog is at an all-time high and spending will follow the expected cash flow.
Infrastructure starting backlog hit a new all-time high in 2017 and will again in 2018. Public Infrastructure new starts reached all-time highs in 2013 and 2015 and are on track to go higher in 2017. 80% of infrastructure spending within the year comes from backlog at the start of the year and that backlog may be comprised of jobs one, two, three and even four years old.
Infrastructure spending in 2017, although down slightly from the all-time high reached in 2015 and nearly equaled in 2016, will reach a new high in 2018.
(This analysis does not include any spending projections from an infrastructure investment bill).
Highway spending is currently benefiting from projects that started in 2015 but that have unusually high value and long duration. They contribute spending well into 2018 beyond the duration that typical projects have ended.
Transportation Terminal starts in the first three months of 2017 were more than three times higher than any three-month period in the previous five years. However, 2017 spending is still affected by uneven starts from two to three years ago, holding down gains in the 2nd half. Transportation will show only a 1% gain in 2017 but produces double digit gains in 2018.
Infrastructure construction spending is near all-time HIGHS and has been for the last several years. That is not meant to indicate there is no need for infrastructure investment. I think the need is well established, particularly for public infrastructure. However, I’ve been writing about infrastructure for more than a year, pointing out the level of activity in this sector and the difficulty that will arise when we try to increase work volumes. The approach to adding new work and the discussions surrounding this approach should reference accurate data, and that should include an accurate representation of current workload and future ability to absorb more work.
For much more in-depth related to infrastructure construction see this post Infrastructure Spending & Jobs