Earlier this week the Commerce Department released its April construction data, which the Associated Press reported with the headline, “US construction spending was flat in April as housing fell.” Of course, being the thematic investors that we are, we immediately looked beneath the headlines to dig into the data, mostly because of the obvious point — if the overall construction spending was flat, yet housing construction fell for the month, something else must have increased, right?
Well, what we find beneath the headline figures is a significant thematic signal for our Rebuilding America theme:
Those declines [in housing construction] were offset by a 4.8% surge in government construction spending to a record high of $299.4 billion, led by big gains in state and local government spending, which also rose to a record high.Spending on highways and streets jumped 6.8%, while school construction rose 2.1%. Federal spending rose to $24.5 billion, the highest since July 2013.
We’ve long written that when it comes to the need for Rebuilding America’s infrastructure, a Federal spending bill passed by Congress would go long way to jump-starting projects and provide a clear catalyst from an investment perspective. No one can argue against that. However, given the current partisan bickering on all fronts, that catalyst doesn’t appear to be coming around the bend anytime soon.
The reality, however, is that the bridges, roads, tunnels and schools are in dire need for upgrades and repairs. They’re not getting any younger as the folks in Washington D.C. fight over who hurt whose feelings. As such, we are increasingly seeing states, counties and local municipalities moving forward on their own accord, securing the financing through bond referendums or simply using the extra tax revenues coming in from economic expansion or imposing revenue generating policies such as new tolls or gas taxes.
What our approach is from an investment standpoint when it comes to the infrastructure sector — and the central point of the Rebuilding America Index we have constructed — is to focus on the US companies participating in the rebuilding and restoration of US infrastructure. Specifically, we look at the companies that provide the products and services that stand to benefit from the focus on upgrading infrastructure to satisfactory levels by 2025. It’s the engineering firms planning the projects, the cement and asphalt companies supplying the materials for building the roads, bridges and tunnels, the equipment companies who supply the tools and vehicles for putting it all into place, and finally, the construction companies that are winning the bids and contracts for the projects. It’s the folks focused on putting the shovel in the ground and making things happen.