Infrastructure is Back on the Front Burner

by Greg Valliere, AGF Management Ltd.

STOCK FUTURES ARE HIGHER THIS MORNING, based in part on overnight reports that the Trump Administration is considering a $1 trillion infrastructure spending program. There aren’t many details, but our initial sense is that this is a smart move, economically and politically, with a chance of enactment.

TRUMP HAS URGED MORE INFRASTRUCTURE SPENDING, and we agree with his assessment that there couldn’t be a better time to tackle the country’s crumbling highways, bridges, dams, tunnels, etc. Why now? Interest rates are close to zero and unemployment is high; if we’re going to tackle infrastructure, now’s the time.

THE MEASURE ALSO IS LIKELY TO INCLUDE funding for telecom infrastructure and rural broadband, according to the Bloomberg article. Trump has scheduled an event at the White House for this Thursday to discuss broadband access, and it’s possible that more details on infrastructure will be available then.

IT’S UNCLEAR WHETHER THIS PROPOSAL would be attached to the new coronavirus spending bill that is starting to take shape in Congress. If Trump attached infrastructure spending to this measure, there would be a decent chance that Democrats would consider supporting it, since they have long advocated more infrastructure spending.

OR LAWMAKERS COULD WAIT TO RE-AUTHORIZE the current infrastructure spending bill, which expires when the fiscal year ends on Sept. 30. Delaying a measure until fall, or making it a stand-alone bill, would diminish its chances, since neither party would be interested in cooperating on a bill right before the election. The percentage move would be to attach it to the next virus stimulus — which is a “must pass” measure.

HOW TO PAY FOR IT? That’s always been the main obstacle, since Congress is unwilling to support a gasoline tax hike (even with lower prices at the pump). Some administration officials, including Commerce Secretary Wilbur Ross, have proposed private sector funding. In the final analysis, an infrastructure bill may not be paid for.

WHAT UNITES TRUMP WITH DEMOCRATS on this issue is the need for more jobs and an economic booster shot. The GDP impact of this wouldn’t be felt until 2021, but it surely would be a psychological plus for an economy that needs all the help it can get.

AND FOR TRUMP, this could be a win-win politically — if he got more infrastructure spending in the virus bill, it would be a major victory. If Democrats balk, he could blame them for refusing to address the country’s obvious infrastructure needs. In either case, infrastructure is back on the front burner.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

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This post was first published at the AGF Perspectives Blog.