US Infrastructure Spend and the Impact of the Recession

Coming back to US infrastructure, Long Term Spend of GDP, % of GDP. This is the Congressional Budget Office figures again. Looks pretty good, doesn’t it?

The percentage of infrastructure has stayed pretty steady from the 1950s through to 2011. Just slightly tailing off but when we look at the recessionary impact it’s quite clear, so this slide is the recession.

A couple of indexes there. GDP doesn’t look too bad but when you run it up against infrastructure specific price indexes, there’s been a 9% decrease in expenditure over the period 2003 – 2014.

That suggests and CBO has some other figures we’re going to look in a second that there’s underinvestment going on.

If we look at the long-term spend by category, the capital is very instructive. So, there’s a big hump of capital expenditure from 1956 through the mid-70s.

Mirrored of course in Canada, the UK, New Zealand Australia, and in Europe, these are all the post World War II stuff, the reconstruction for those countries that were devastated by the war and also for the other countries that are building out of infrastructure.

And then look at the decrease of the big recession that we’re just coming out of, 23% decrease in capital expenditure in the US; 6% increase in operations and maintenance.

So what we can conclude from this graph is that operations and maintenance have been taking along than where it should be.

There’s a big catch up of capital expenditure required over the next period in the US.

And the other interesting thing from CBO is, of course, is that most of the drop off has been on federal funding.

State and local government funding, there has been a smaller decrease and that’s not surprising because they’re a lot closer to the action and they know the needs in their own counties or their own cities or their own State, whereas federal – they spread their cost so much, larger audience, a lot more states, of course, a lot of other competing demand for the money.

So just to sum up this and this slide here, the US had a large capital spend in the 1960s, which is going to recreate a renewal echo now or soon.

Long-term average spends currently is about 2.5% of GDP in the developed world, OECD countries. International research suggests around about 3.5% of GDP required. That’s some fairly large numbers in the US context about 185 billion extra a year.

2003 – 2014, 9% real decrease in overall expenditure and 23% decrease in the US capital expenditure.

And federal spending about 25% has dropped more than state and local spending.

As we saw in New Zealand, and as you’re seeing here in the US it is very easy to under-invest in infrastructure in recessions as the results don’t start to show up for some time.

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How the Recession Affected Infrastructure Funding of New Zealand