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One of the promises that took center stage in Donald Trump’s campaign trail was the $1 trillion funding that he wanted for U.S. infrastructure. And now, the Democrats have proposed a similar-sized investment, albeit suggesting a different route.

Intended to rebuild America’s transportation and other infrastructure, the Democrats’ proposal hinges mostly on new government spending. Trump, on the other hand, is keen on public-private partnerships for raising up to $1 trillion for the sector. His team has suggested $137 billion in tax credits to incentivize private participation.

At this point, we don’t know which one will get the lead, (or, if there’s any chance of collaboration between the two proposals) but one thing’s for sure: America’s infrastructure needs some serious attention, and it needs it fast!

The average age of all fixed assets in the U.S. was at a record high of 22.8 years in 2015, with that of government-owned (average of federal, state and local) touching 24 years – the highest among them dating back to 1925. As roads, bridges and pipelines get rustier – potentially adding to future repairing costs – project proposals for replacements/repairs for reviving the American infrastructure has become a timely issue.

Source: Bureau of Economic Analysis

Corroborating the above statistics is the 2013 report from the American Society of Civil Engineers that gave a grade of D+ to the nation’s infrastructure. According to the Federal Highway Administration estimates, $170 billion in capital investment would be needed on an annual basis for improving the nation’s roads. As for water works, around $600 billion is needed over the next 20 years for infrastructure (According to federal estimates).

Nevertheless, Trump seems to be laying the groundwork already. In December, the President’s transition group asked the National Governors Association to collect from U.S. states a high-priority lists of infrastructure projects – mainly “shovel ready.” Forty states have submitted a total of 300 projects, following which Trump’s team delineated a to-do list of 50 items, which includes repairs/replacement of aging bridges and highways, fixing outdated river locks and dams, building railways and airports along with upgrading electricity networks and water systems. More recently, Trump proposed easing of regulations on domestic manufacturing and streamlining of permitting procedures for high-priority U.S. infrastructure projects. He took steps towards advancing the Dakota Access and Keystone XL pipelines’ construction – controversial projects that were blocked under the Obama administration.

Bottom Line for Investors

Whether infrastructure ultimately gets funded from the government or through private money, rebuilding and repairing the nation’s ailing facilities is potentially a strong economic growth-booster. While “Buy American and hire American” has been the central theme of Trump’s presidential motto, Democrats’ infrastructure proposal includes the creation of 15 million jobs over ten years. A 2012 research publication by the Federal Reserve of San Francisco shows that every $1 of federal grant towards a state’s highways can generate $1.5-$3 of economic output for the state in the immediate term, and up to $8 over the medium term though increased productivity.  These estimates point towards potential wage growth and output gains for the U.S.

For a more comprehensive analysis, we will have to wait for better clarity on the channels of funding and revenue generation for each of the proposals from the Democrats and the Republicans. Nevertheless, some amount of private participation in infrastructure spending shouldn’t hurt, assuming state, local or federal governments could face budgetary pressures even as funding urgencies for America’s aging infrastructure intensify.  Private players usually get a steady stream of revenues from such projects (through tolls and other usage charges) – something which potentially lowers downside risks for them, and therefore, could strengthen the incentives for their participation. A tax break could only bolster their returns.

Despite differences between the two political parties on the funding sources for infrastructure, what’s apparent is that the sector is likely to receive a new lease of life in the coming years. This should spell growth opportunities for manufacturers an
d other companies either directly involved in the rebuilding process or supplying the essentials for it.

While we will have to wait and see what changes come into effect for infrastructure, there are many other factors to take into consideration when evaluating the state of the economy. To get a deeper look into additional factors, check out our just-released Economic Outlook report. This report offers critical predictions and a great deal more that can give you a significant leg-up over other investors. Get answers to questions like – What are domestic and global risk factors to consider? What will GDP growth look like through 2018? Where is inflation expected to reach? When is the next rate hike expected to occur? To get the answer to these questions and many more, download our Stock Market outlook report today by clicking on the link below.

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