Government Infrastructure Spending: Impact on Market Dynamics

Sectors Benefiting from Infrastructure Spending

Industrial machinery, construction aggregates, building materials, utilities, and non-residential construction sectors are benefiting from increased government infrastructure spending.

"Benefits from increasing U.S. infrastructure spending, elevated manufacturing investment levels, and improving single family housing starts are expected to partially offset declines in commercial real estate construction and softening rental demand." --- (DE, sec filing, 2024/Q2)

"The IIJ funding is benefiting both highways and other public infrastructure activity. Given the demand backdrop just discussed and the weather impacted first half shipments being down 6%, we now expect aggregate shipments to decline between 4% and 7% for the full year." --- (VMC, earning call, 2024/Q2)

"We're well-positioned to benefit from infrastructure tailwinds, providing steady product demand and favorable commercial dynamics across our coast-to-coast footprint." --- (MLM, earning call, 2024/Q1)

"Utilities across the United States are experiencing and forecasting meaningful increases in power demand for the first time in many years, driven by the adoption of new technologies and related infrastructure, including artificial intelligence and data centers, as well as federal and state policies designed to accelerate the energy transition and policies intended to strategically reinforce the domestic manufacturing and supply-chain resources." --- (PWR, earning call, 2024/Q2)

"Construction projects, as well as government related infrastructure, continue to benefit non-residential demand." --- (CAT, earning call, 2024/Q1)

Impact on Employment and Consumer Spending

Higher prices and inflation are softening discretionary spending trends, while consumer preferences shift towards services and experiences. Loyalty programs can boost spending and frequency. The living wage gap significantly impacts economic health, highlighting the importance of addressing wage issues to enhance consumer spending and employment.

"This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in Home and Hardlines." --- (TGT, earning call, 2025/Q1)

"Now I'd like to provide a quick update on our view of the macro. Uncertainty around interest rate cuts, stubborn inflationary pressures and a consumer still showing a preference towards spending on discretionary services and experiences continue to weigh on the DIY home improvement demand." --- (LOW, earning call, 2025/Q1)

"Even if they're a less frequent customer their frequency and spend still increases when they join the program and then when customers leverage MOP for example they're increasing their spend and frequency increases even further, and it leads to more habituation." --- (SBUX, conference, 2024/06/05)

"And the living wage gap may be costing the economy more than $4,500,000,000,000 every year. By voting for item 7, shareholders can urge Walmart to account directly for its poverty wages and resulting costs to society, which in turn affect the economic health upon which diversified portfolios depend." --- (WMT, event transcript, 2024/06/05)

Influence on Raw Material Prices

Government infrastructure spending significantly influences raw material prices, with fluctuations in scrap, pig iron, iron ore, and copper prices impacting revenues and net income for companies like Nucor and Freeport-McMoRan. These price changes are driven by global supply and demand dynamics.

"In the raw materials segment, we are exposed to price fluctuations related to the purchase of scrap and scrap substitutes, pig iron and iron ore." --- (NUE, sec filing, 2023/Q2)

"Accordingly, in times of rising copper prices, our revenues benefit from adjustments to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs." --- (FCX, sec filing, 2024/Q1)

"Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices are subject to change based on market fluctuations." --- (NUE, sec filing, 2023/Q2)

"The impact of price changes on net income attributable to noncontrolling interests for the year 2024 would approximate $0.1 billion for each $0.25 per pound change in the average price of copper for the second half of 2024." --- (FCX, sec filing, 2024/Q2)

"Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel." --- (NUE, sec filing, 2023/Q2)

Effect on Technology and Innovation

Government infrastructure spending is driving increased demand for technology, streamlining industries, and fostering innovation. Companies like IBM, Intel, Microsoft, Cisco, and Google are leveraging this trend to enhance software, infrastructure, AI, and cloud services, positioning themselves for future growth and technological advancements.

"That means you get two effects going on. One, there is even stronger demand for software and infrastructure because people believe technology helps you in those environments and helps in an environment of increased labor costs and increased supply chain costs." --- (IBM, earning call, 2024/Q1)

"Now on a more immediate basis, the systems processes and industries we have lived and worked with for the last several decades are now being streamlined daily through the application of technology." --- (INTC, conference, 2024/06/12)

"And so the reason we have a deliberate strategy to govern this technology is so that we can realize the potential benefits of this technology in a way that benefits everyone. And of course that is very much in line with Microsoft's mission." --- (MSFT, Fireside Chat, 2024/08/05)

"And we believe with some of the technology that we're building, we can actually put our customers in a better position than the adversaries, which will create a growth for us in the future." --- (CSCO, Investor Day, 2024/06/04)

"You can see that from the increases in our capital expenditures. This will fuel growth in cloud, help us push the frontiers of AI models, and enable innovation across our services, especially in Search." --- (GOOG, earning call, 2024/Q1)

Role of Public-Private Partnerships

Public-private partnerships are essential for meeting infrastructure needs, driving large-scale impact, and unlocking capital for economic growth. These collaborations create unique opportunities in infrastructure and private markets, benefiting portfolios and fueling organic growth.

"Private capital will be critical in the meeting these infrastructure needs both standalone and through public private partnerships." --- (BLK, earning call, 2024/Q2)

"Quotes from Our Partners Public private partnerships are key to driving impact at scale." --- (JPM, press release, 2024/06/18)

"We're proud to anchor and fund this powerful public-private partnership that unlocks capital for America's economic growth engines and we hope this facility will serve as a blueprint that can be replicated across the country," said Asahi Pompey, Goldman Sachs' global head of Corporate Engagement and president of the Goldman Sachs Foundation." --- (WFC, press release, 2024/07/12)

"About Prudential Private Capital For nearly 100 years, Prudential Private Capital ("PPC") has been partnering with a wide range of corporations, sponsors, and institutions, enabling them to achieve their growth and funding goals." --- (Prudential Private Capital, press release, 2024/05/06)

"These relationships are creating a wealth of opportunities for unique transactions, especially in infrastructure and private markets, and they benefit our clients' portfolios, they fuel organic growth. In the second quarter, we saw equity markets power to another record high and more clients starting to re-risk." --- (BLK, earning call, 2024/Q2)

Regional Disparities in Infrastructure Spending

Infrastructure projects in Turkey, Germany, and Austria highlight significant regional disparities in government spending, with varying levels of investment and development in intermodal systems.

"And after that, of course, I spent some time in Turkey rebuilding a new intermodal platform and new intermodal systems and delivery capability that really disconnected and decarbonized some of the traffic going moving around in Germany and Austria.And then fortunately, I was able to come to KCS 6 days after my non compete was over." --- (NSC, Fireside Chat, 2024/04/29)

"unseasonably strong in the first quarter of 2023. But total demand is very strong against a healthy backlog of large construction projects with infrastructure spending expected to accelerate." --- (CSX, earning call, 2024/Q1)

Long-term Sustainability and Environmental Impact

Government infrastructure spending faces challenges in creating sustainable, long-term business models in the low-carbon space (XOM). Efforts include environmental justice assessments (DUK), advanced digital platforms for cost and sustainability goals (NEE), life cycle considerations and water usage (TSLA), and the influence of government policies on renewable fuels and hydrogen (CVX).

"And so the complexity that I see in the low-carbon space, that's a particularly challenging one because of all the moving parts and all the work that has to be done to try to piece those things together to come up with, frankly, a business and business model that, one, is sustainable for the long term." --- (XOM, earning call, 2024/Q2)

"over 100 initial environmental justice assessments as part of a holistic approach to project development and execution as well as the development of statewide and regional environmental justice advisory councils across North Carolina. As the energy sector transitions, the company is working to ensure its workforce and others in the industry are set up for long-term success." --- (DUK, press release, 2024/04/24)

"Our advanced digital platforms also allow us to operate our sites remotely, helping us drive O and M costs that are 20 to 25 percent lower than the rest of the industry. We are unmatched in our ability to plan and build for the long term and invest at scale to help customers reach their cost and sustainability goals successfully and profitably." --- (NEE, event transcript, 2024/06/11)

"We have made and plan to make further investments in hardware and software ecosystem. But sustainability is not just about avoiding emissions. It needs to take into account the whole life cycle from to use less water per vehicle than the industry average." --- (TSLA, event transcript, 2024/06/13)

"And so we're pleased with both of these. There are markets, maybe to your point about economics that are in some ways heavily influenced by government policy, be it the renewable fuel standard and the Low Carbon Fuel Standard, which affect renewable fuels or some of the things in the investment or the inflation reduction act that affect hydrogen." --- (CVX, earning call, 2024/Q1)