After years of outsourcing to China the United States has decided it needs to invest in its own manufacturing capabilities. The headline stories have focused on the investment in semiconductor plants, but the government has also promised trillions in spending on roads, railways and bridges. This huge fiscal stimulus might contribute to persistently higher inflation, but it is good news for the companies that will be tasked with building the US’s bridges, roads, and manufacturing facilities.
In his annual shareholder letter, JP Morgan chief executive Jamie Dimon said he believes the US might have “stickier inflation and higher rates than the market expects”. He sees a “growing need for increased spending” to transition the US economy to green energy, as well as restructure its supply chains and boost military expenditure. However, he admits this will all put further upwards pressure on consumer prices, with a forecast that interest rates could hit 8 per cent.
The US government has passed huge infrastructure spending bills. In 2021, the Infrastructure Investment and Jobs Act (IIJA) earmarked $1.2trn to be spent over the next 10-years. Years of underinvestment has left the country with crumbling infrastructure. In the United States one in five miles of highways and major roads, and 45,000 bridges are in poor condition, according to the White House’s factsheet. On top of this 30mn Americans live in areas without acceptable broadband.
A lot of the attention has been focused on the Chips and Science Act, which is giving billions of dollars to semiconductor companies like Intel (US:INTC), Samsung and TSMC to construct plants in the US. However, these plants can’t live in isolation. For the US to build out its manufacturing capability it needs to upgrade the infrastructure across the country, including the power grid, highways and railways.
This investment is already having an effect on spending. Construction spending on manufacturing facilities in the US has more than doubled from $97bn annually at the start of 2022 to $220bn at
the start of 2024, according to data from the St Louis Fed. In the same period, across every sector annual construction spending has jumped 16 per cent from $1.8trn to $2.1tn. For reference, this is equivalent to two thirds of the entire UK GDP.
This fiscal stimulus has been driving the US economy forward in the face of interest rate rises. In March, the US added 303,000 jobs which was way ahead of the 200,000 the economists expected. The flipside of this story is that the hot economy is keeping inflation stubbornly above 3 per cent, with annual CPI rising to 3.5 per cent in March.
This is not a good situation for bondholders. However, there are a selection of US manufacturing companies that are already seeing this infrastructure spending boosting their earnings. The Investors’ Chronicle has ranked the S&P 500 companies by earnings growth and earnings upgrade momentum. This meant that it not only identified businesses with fast growing earnings but those that were seeing forecasts of their earnings being consistently upgraded by analysts.
In this report we dive into two such companies benefitting from America’s drive to restore and advance its national infrastructure.
