Infrastructure Bill Updates

Infrastructure Bill Updates
On November 15, 2021, the bipartisan Infrastructure and Investment Jobs Act passed, allocating an estimated $1.2 trillion in total over ten years, including $550 billion in new spending during the next five, divided between improving the transportation network ($284 billion) and society’s core infrastructure ($266 billion). Eight months later, how do things look after its passing?

Slow start to funding

It wasn’t until the end of April that we began to see the release of infrastructure funding. Of the $110 billion released, $52.5 billion for federal highways and $20.5 billion for public transit will be released this fiscal year. Another $27 billion for bridges, airports, drought resilience, rural highways, and more will be released over the next five years. It also appears that funding for high-speed broadband infrastructure is moving slower than expected, with the announcement of its application process only beginning in mid-May. But we must remember that the IIJA wasn’t created as a stimulus bill in response to an economic crisis. It also takes a massive, coordinated effort between federal agencies, states, and local governments to oversee funding and administration.

Inflation making its mark

Dodge Data & Analytics report on construction starts in May shows that in the past year, total nonbuilding starts (highway and bridge, environmental public works, utility/gas plants, etc.) were 3% lower than in the past year 2021. But Richard Branch, chief economist for Dodge Construction Network, does not attribute this to inflation. “Nonbuilding starts have yet to fully realize the dollars authorized by the infrastructure act.” Some even see the infrastructure legislation providing a bump for non-residential construction towards the end of the year and beyond. However, Branch does see the aggressive stance taken by the Federal Reserve to combat inflation risks as something that can slow the momentum in the construction industry as a whole.

High interest rates can make a big impact on the construction industry since contractors are capital-intensive companies. Financing equipment and materials can significantly affect a company’s profitability, causing contractors to pass on increased costs when bidding. As costs for materials continue to rise, some construction companies are redoing their estimates or adding clauses into contracts to allow them to go beyond estimates where costs balloon. Many companies are concerned that the money released through the infrastructure bill will not cover as many construction projects as they hoped because of inflation.

Construction Labor Shortages

The Infrastructure bill was designed to temper the decline of skilled-labor jobs. But employers worry the skill demands required by the infrastructure plan will exceed workers’ skills. Construction companies are already struggling to find skilled employees; before the bill, there were almost 400,000 openings in this sector. Another issue is that many of those getting close to retirement age during the pandemic opted to retire, meaning that not only is the industry having to fill jobs but find replacements for those looking to leave the workforce permanently. Companies are also increasing wages, taking a hit to profits that are already taking a hit due to the current economy. But not all news associated with construction labor is gloomy. According to the US Department of Labor, active programs for apprentices have increased to almost 25,000 after bottoming out in 2014 at around 19,000. Other surveys have also shown that as a result of the pandemic, Gen Z seems to be opting for jobs in the skilled trades rather than going into debt for a four-year college degree.

Even with rising costs, supply chain issues, and labor questions, economists still think 2022 is poised to be a good year for the US architecture, engineering, and construction (AEC) sector. Much of this is attributed to the IIJA and its boost to the non-residential segment. New infrastructure needs to be built, and old infrastructure desperately needs repairing. Studies suggest that the increase in prevailing wage projects and wages can draw some of those who left the workforce out of retirement. And if the industry can start taking advantage of the untapped potential of women in the skilled trades and the growing interest of Gen Z, maybe the urgency to fill jobs will begin to decrease.