US construction outlook brightens on Senate infrastructure bill approval, but challenges remain

Following the Senate’s overwhelming bipartisan approval on August 10th for the long-awaited infrastructure spending bill, which includes long-term investments in transport, energy, utilities and climate-related initiatives, GlobalData, a leading data and analytics company, now forecasts that the US construction industry will grow by 3.3% a year on average between 2021 and 2025 compared to a previous forecast of 2.2%.

Dariana Tani, Economist at GlobalData, comments: “While the new bill falls short of President Joe Biden’s original US$2.3 trillion proposal, it is the largest injection of federal funding into infrastructure projects in over a decade and it is expected not only to bring a boom to the construction industry, but also to the wider economy by creating millions of jobs and strengthening the sales and earnings for many US corporate business sectors over the coming years.”

The new bill includes US$550bn in new government spending to invest in various US infrastructure sectors over the next five years. When put together with the spending that would be typically appropriated every year, including existing infrastructure transportation programs passed earlier this year, the total amounts to US$1.2 trillion over the next eight years. As a result, GlobalData now predicts the infrastructure construction sector will grow by an annual average of 5.3% in 2021-2025 compared to the previous forecast of 1.5%.

However, the timing of passage is uncertain. Before it is enacted into law by the president, the bill could face a time-consuming path as it still needs to be approved by the House of Representatives, where progressive Democrats have said they will not vote on it unless it is passed along with a separate, and even more ambitious social bill worth US$3.5bn, which focuses on education, health, child and elder care and climate change initiatives. This could put the infrastructure bill on hold for weeks, if not months, which could further prolong the provision of cash flows to be given to projects and individual states.

Tani adds: “Growing concerns over rising materials costs (which have increased dramatically since the COVID-19 pandemic started) combined with longstanding issues such as labor shortages and expensive land remain key challenges to the construction industry’s outlook, as these issues could constrain the impact of the new infrastructure spending package in the years ahead.”

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