U.S. infrastructure outlook

This analysis is by Bloomberg Intelligence analysts Sonia Baldeira, Karen Ubelhart and Iwona Hovenko. It appeared first on the Bloomberg Terminal. 

Neglected U.S. transport tops decade’s infrastructure priorities
Transportation investment tops the list of U.S. infrastructure priorities, and will likely reach $306 billion annually in the next 10 years, based on BI analysis. Next comes the renewables industry, with spending needs of up to $201 billion through 2025, representing 135 gigawatts of wind and solar capacity. In contrast, midstream oil and gas infrastructure in North America faces a drop in spending after a robust pace in years past, amounting to an estimated $230 billion over the next decade.

Investments of $49 billion may be spent on gas and $33 billion on nuclear facilities. President Donald Trump administration’s trade policies are key to transportation-project plans. Funding remains a challenge, with the American Society of Civil Engineers estimating a $1.6 billion 2013-20 shortfall.

Unloved, aging U.S. infrastructure is crying out for spending
Spending on transportation construction in the U.S. could reach $306 billion annually in the next 10 years vs. $245 billion in 2016, based on BI analysis. That modest 2-2.5% pace is well below the American Society of Civil Engineers’ estimate of $454 billion a year needed to repair aging infrastructure. Highways and bridge construction could account for the majority, at $200 billion, assuming an historical 60-65% of total spending, mass transit $26 billion (9%) and airports $17 billion (6%).

Trump’s hazy trade policies cloud U.S. infrastructure visibility
Clarity on changes to trade policies by President Donald Trump’s new administration — albeit internal or external — is critical for the visibility and planning of transportation projects. Increased freight transportation in the coming years demands more connections, including improvements to roads and rails, as well as the addition of new ports or airports. Intra-North America freight growth is expected to be 87% through 2030 and 239% by 2050, based on OECD and International Transport Forum 2016 data.

The extent of future U.S. trade with other regions, such as Asia, Latin America, Europe and Africa, will determine confidence in infrastructure spending and lure more private investors to put money into long-term assets such as transport.

U.S. infrastructure stuck between rock and hard place for funds
While the need for major U.S. infrastructure spending is undisputed, funding should remain a challenge. The American Society of Civil Engineers estimates a $3.6 trillion need in 2013-20 and a $1.6 billion funding shortfall. Annual public-infrastructure spending of $280 billion since 2013 is 62% of the estimated sum. Congressional approval — the biggest obstacle to securing long-term funds — isn’t expected to change materially. Transportation depends on federal funds for 51% of highway and bridge-project funding.

ASCE publishes a report card on U.S. infrastructure every four years. An update is due on March 9, and results aren’t likely to show much, if any, improvement from the prior D+ grade. Infrastructure is broadly defined as including transportation, power, airports, education and other categories.

‘Wait and see’ is only avenue for U.S. infrastructure investors
The limited information from President Donald Trump’s administration and the Republican Congressional leadership is raising many as yet unanswered questions. Investors are therefore putting major infrastructure-investment decisions on hold. The $1 trillion widely touted as the planned infrastructure stimulus remains unconfirmed and lacks detail. It’s still unclear if it includes a wide range of sectors in addition to transportation, such as energy, utilities, freight rails, telecoms, hospitals or prisons.

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