Infrastructure Investment Provides Best “Upside Risk” for U.S. Economy
Earlier this week, the American Council of Engineering Companies released its latest Private Industry Brief, which includes a mid-year economic update with data and insights about the current state and future prospects of the U.S economy and the engineering industry.
ACEC Vice President of Private Market Resources Erin McLaughlin, who authored the Brief, the Engineering Influence podcast to talk about the highlights and key findings. Following is an edited version of the conversation. Click here to listen to the podcast. Click here to subscribe to the Private Industry Briefs for free.
ACEC: In your Private Industry Brief, you report that the latest survey of the members of the National Association of Business Economics (NABE) forecasts 8.5 percent annualized growth in U.S. Gross Domestic Product (GDP) in the second half of 2021. This is a huge jump from the March forecast, which projected 4.8 percent annualized growth. What drove that recalculation?
McLaughlin: It’s really that a lot of people have gotten the COVID-19 vaccine and are getting back to normal. About 70% of our economy is based on consumer spending, and so folks’ comfort levels really do drive the GDP number. The latest numbers reflect people feeling comfortable going out, going on vacation, eating out in restaurants, and doing all those things that we did not do during the dark days of the pandemic.
ACEC: The engineering industry strongly supports passage of a big infrastructure package this year. What impact would that have on GDP?
McLaughlin: One of the questions they ask in the NABE survey is: “What’s the biggest upside risk to the economy?” An upside risk is one that positively impacts the economy. The economists have a bunch of choices, and infrastructure spending is always one of them. Usually only about 5 percent of the respondents say that infrastructure spending would be the most positively impactful action for the economy, but in this survey, 21 percent of the panel said that infrastructure spending was the biggest upside risk.
For those of us who advocate for infrastructure, that’s big news. To be able to tell policymakers and influencers in the U.S. and worldwide that these macro-economic forecasters think that infrastructure spending would have the greatest impact on our economy really strengthens our arguments. This is something we’ve been promoting and talking about for a long time, so fingers crossed that we see an infrastructure package that results in the growth forecasted in the report.
ACEC: You also report on how economists are using new tools in their forecasting.
McLaughlin: In the last recession, everybody wasn’t walking around with an iPhone or a smart phone, and there weren’t sensors everywhere. Today the world is monitored much differently, and economists and policymakers are using “alternative data” or “high-frequency data” to track the economy.
In the report I featured the Mobility Trends Index from Apple. Anyone with internet access can look at it. You can type in any major U.S. city and see how many people are taking transit now compared to before the pandemic, and how many people are walking or driving versus pre-pandemic levels. This helps economists gauge on a day-to-day basis how many people are returning to work
Maybe you’ve heard of the Open Table Index. Who would have thought that an online reservation system would become an economic index, but it actually reveals a lot of information. What cities and even what countries are opening back up? What kind of restaurants are people dining in? How much are they spending? Are people returning to city centers?
ACEC: A centerpiece of the Private Industry Brief is your market sector outlooks, in which you forecast growth — or decline — in five sectors and highlight some of the key drivers. Which market sectors are you forecasting to outperform in the coming years?
McLaughlin: Communication, which includes broadband data centers, will likely be the fastest growing market over the next few years, up by about 50 percent through 2025. It’s not a big market, expected to total about $34 billion in 2025, but it’s an important one, because as we learned during the pandemic, this country needs to be connected in ways that it’s not yet connected. We have people who want to work from home, and they need a reliable internet connection. We have remote learning, and tele-health appointments. And people are also streaming a lot more entertainment than they did just a few years agogo.
Policymakers are increasingly accepting that communication and broadband are infrastructure, and each of three infrastructure packages under consideration — the Republican plan, the Biden plan, and the bipartisan plan — includes money for broadband.
ACEC: A sector that many of us are familiar with is the residential market, which has been really strong since the start of the pandemic.
McLaughlin: That strength started before the pandemic, and it’s really due to the aging of the Millennials. The oldest Millennials are turning 40 this year, and they are at that age where they are buying houses or are buying bigger houses. And the need for bigger houses probably really came even more into focus over the past year as they were at home with their kids and their partner having to remote learn and work. Combine that with the current low-interest-rate environment, and you’re going to get numbers like the 46.1% year-over-year increase in single-family construction in May 2021.
Is that sustainable? Probably not, because that is just such rapid growth. Is it a bubble? Also probably not, because we have a population that needs homes so the demand is going to continue to be there.
