- As the U.S. economy recovers, the Biden Administration is looking to further strengthen the recovery with an infrastructure funding bill. We've updated our projections on what impact a $1 trillion investment in infrastructure would have on the economy through 2030.
- We estimate that, in real dollar terms, the project will create more in economic activity than it would cost. In particular, we estimate that a $1 trillion investment in infrastructure would add $1.4 trillion to the economy over an eight-year period--a fiscal multiplier of 1.4x.
- In terms of jobs, we found that the infrastructure project would create 883,600 jobs by 2030--many middle-class jobs. And per capita income would be $100.50 (10.5%) larger than in the no infrastructure scenario.
- Private-sector productivity would also get a boost from the infrastructure investment--by around 10 basis points, on average, each year. That productivity boost would likely lift average GDP growth on an annual basis to 2.1% from around 2.0% over the period.
As stimulus checks work their way through the system, the Biden Administration is looking to further strengthen the U.S. economy, in the near and long term, with an infrastructure funding bill. The two major parties have each proposed an infrastructure bill. This leaves the Biden Administration with having to decide whether to embrace a bipartisan infrastructure plan, or somewhat go it alone through the reconciliation process, which requires a slim majority in the Senate to pass bills.
Given these two options, the question has moved from will it pass, to how big a plan will it be?
Taking that into account, we updated our projections on what impact a $1 trillion investment would have on the U.S. economy through 2030.
Fortunately, the U.S. economy looks a lot better than in May 2020, when we did our last infrastructure analysis (see "Infrastructure: What Once Was Lost Can Now Be Found--The Productivity Boost," published May 6, 2020). But with an improving economy, there are higher costs of production, making our 2020 multiplier less feasible today. Recognizing that commodity prices are high today, if, indeed, they are "transitory" as the Fed and we believe, prices would be lower when the shovel hits the ground.
With that said, we believe the multiplier today would still be above its 1.0x neutral mark--or, in dollar terms, the project will create more in economic activity than it would cost. Our current analysis estimates a 1.4x multiplier from the $1 trillion infrastructure investment. The investment would add $1.4 trillion to the economy over the project's time frame, with more benefits later, assuming the project was productivity generating.
Economic Recovery: A Faster Return To Pre-Pandemic Growth
Over the long run, the infrastructure investment will likely provide the productivity boost needed to help get the expansion back on track. It will essentially steepen the slope of the curve, with the infrastructure scenario catching up to the pre-pandemic economic expansion at a faster rate than the no infrastructure scenario. The investment would also add as much as $1.7 trillion to U.S. GDP growth over the decade (see chart 1).
The infrastructure growth path is steeper than the no infrastructure growth path but remains much shallower than pre-2008 U.S. growth, highlighting the scars left behind from both the Great Recession and the pandemic.
Jobs: Over 880,000 Added By 2030
In our analysis, we found the infrastructure project would create 883,600 more jobs by 2030--many middle-class jobs--in construction, engineering, and accounting. This will likely help offset some of the impact of COVID-19 on the jobs market, providing a lifeline to the millions of unemployed workers, including many long-term unemployed, who were displaced by it.
Wallets also will be thicker, with per capita personal income in 2030 $100.50 (10.5%) larger than in the no infrastructure scenario. On top of an already large household savings surplus from quarantine (about $2.4 trillion above its 2019 average), more jobs with fatter paychecks will help propel households to spend an additional $677 billion over the eight-year period.
Productivity: A Potential Long-Term Boost
An economy's productive capacity and output typically increase once infrastructure is built and absorbed into the economy. We estimate the infrastructure investment will lift private-sector productivity by 10 basis points, on average, each year.
Overall, infrastructure investment, if done wisely, leads to increased productivity and, thus, to economic growth. Indeed, public infrastructure investment could "crowd in" private investment, with every dollar spent having a multiplier effect. If the project was implemented wisely, the multiplier from the infrastructure investment would be larger than the money spent. That said, the CBO notes in its August 2021 report on physical infrastructure that deficit financing would mitigate the positive effects on the economy of investments in infrastructure.
This investment leads to the productivity effect, which would likely increase future investment and jobs long after a project has ended. In our analysis, business investment increases by an additional $1.7 trillion over the eight-year period in the infrastructure scenario. Under the CB0 assumption that the infrastructure boost to private-sector productivity will be in place for another seven years, we expect the business investment lift would continue, all else equal.
For evidence of this, look no further than Dwight D. Eisenhower's Interstate Highway System. Costing about $500 billion in today's dollars, it has clearly paid for itself given all the products and people that travel on its 48,000 miles of roads on any given day. Ike's project is reportedly estimated to have a multiplier equal to 6x--or, for every dollar spent, the U.S. got six dollars back.
Economic Growth: Begin Takeoff
We expect the $1 trillion infrastructure investment, in its entirety, would continue to boost productivity seven years after the spending was completed, in line with the CBO's infrastructure analysis in August 2021. (After that, the productivity effect will slowly diminish over time as the stock of public capital depreciates, though regular maintenance will help extend its life.) That productivity boost would likely lift our estimated real potential (maximum sustainable) GDP growth by 10 basis points, on average, over the eight-year horizon, lifting average growth on an annual basis to 2.1% from around 2.0% over that period. According to the CBO's economic projections in July 2021, it expects potential economic growth, excluding infrastructure, to slow to just 1.7% by 2030. With that said, an extra infrastructure-driven lift to 1.8% for potential growth would be welcome news.
Even with a possible $1 trillion boost in spending, public spending on infrastructure as a share of GDP would remain near record lows (see chart 2). From 1947-1973, when growth in the stock of public capital, which is used to build and maintain U.S. infrastructure, averaged 4.5% in real terms, productivity growth averaged more than 2.6%. But, from 1974-1995, real growth in public capital stock slowed to an average of just over half that, with average productivity growth, at 1.5%, losing over one full percentage point. And, after the 3% productivity boost from 1996-2005, resulting in large part from significant private investment in internet connectivity, productivity growth fell further, averaging just 1.1% from 2011-2020.
U.S. GDP growth over the past 10 years, through 2019, has struggled at around 2.3%--one-third the rate of 1959 when the Interstate Highway System was built. Even when factoring in the pandemic and recovery boost, the 10-year growth trend through 2022 would remain at 2.3%. While the near-term burst in economic activity is expected to reach a multidecade high, we see the likely short-lived demand-driven reopening surge lasting through next year. In our forecast, growth will once again slow to just 1.8% by 2024 after the reopening surge and absent infrastructure.
In our analysis, we estimated that, with a multiplier of 1.4x, infrastructure investment would still add an additional $1.4 trillion to the economy over the project's time frame, with more benefits later, assuming the project was productivity generating. The type of project matters when measuring its economic gains.
Transportation infrastructure for highways has been measured to have a multiplier of around 2.0x, according a 2012 San Francisco Fed study. And according to a March 2021 IMF study, estimated multipliers associated with green spending, which make up a noteworthy share of proposed infrastructure investment in both the BPI and Democratic proposals according to our calculations, are also considered to have higher multipliers than those associated with non-eco-friendly expenditure, depending on sectors, technologies, and horizons. These imply that a greener approach may be a win for both the U.S. economy and the planet.
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
This report does not constitute a rating action.
|U.S. Chief Economist:||Beth Ann Bovino, New York + 1 (212) 438 1652;|
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