US highway investments reverberate throughout economy

As the US Congress debates funding mechanisms for the Highway Trust Fund (HTF)-the House of Representatives voted a two-month extension until the end of July-it may wish to consider the dividends that such investment pays.

Every $1 in federal highway and mass transit investment returns $1.80-2.00 in goods and services produced, according to IHS models evaluating the macro- and microeconomic effects of HTF spending. These returns hold for both the base case, which assumes the continuation of current federal HTF spending over the next five years ($54-$56 billion annually) and a growth scenario that assumes a 5% year-over-year increase.

The models show that current federal funding levels for highways and mass transit contribute an average $109 billion to real economic activity annually. The growth scenario would add an additional average of $10.6 billion per year to real GDP.

The findings reflect the HTF's effectiveness in enabling the efficient production and delivery of goods and services by boosting the transportation system's operational capacity-and the flow-on effects for economic growth. In percentage terms, the current level of federal transportation spending contributes, on average, about 0.7% to real GDP per year. Increasing spending by 5% each year, 2015-19, would on average contribute an additional 0.1% to real GDP annually.

Direct, indirect, and induced effects of transportation infrastructure investment to the US industrial economy were also modeled to assess the economic impact by sector. The sector analysis found that the benefits of maintaining US roads and mass transit systems go far beyond the contractors, cement companies, and construction workers who directly carry out the repair and upgrade work.

For every three construction jobs created, roughly five more jobs are generated elsewhere in the economy. Service industries such as health, education, travel and tourism, and professional and business services, for example, experience approximately 40% of the overall employment increases. In the base case, infrastructure investment contributes on average 614,000 jobs per year and, under the growth scenario, an additional 59,400 additional jobs annually.

"Indirect" beneficiaries of this investment include the design firms that plan these projects, lawyers who secure rights of way, engineers who oversee construction, and finance companies that disburse payments. Money also ripples through the economy ("induced" contribution), giving more purchasing power to employees that they can use on food, gas, or entertainment.

Both the macroeconomic and sector analyses demonstrate the significance of continuous reinvestment in sustaining and advancing the US' competitive advantage in the global marketplace-allowing companies to establish lean supply chains, deliver competitively priced products and services, and achieve healthy profit margins. The multiplier effects are vast, stimulating expansion reinvestment by companies in all sectors, particularly those engaged in engineering and construction, manufacturing, and advanced information and communication technologies and systems.

Karen Campbell is senior consultant; and Robert Brodesky is director, transportation industry consulting, for IHS Economics and Country Risk