The magnitude of the U.S. infrastructure plan, which cleared the U.S. Senate on Aug. 10 — $550 billion, front-loaded over 2022-25 — is without precedent in modern history and comes in a context of very strong residential demand and recovering commercial construction. In addition, prior stimulus plans have shored up state and local governments’ finances and made them more likely to maintain or increase their own infrastructure investments. Combined, these factors amount to an extremely robust demand outlook.
Supply, on the other hand, is expected to be tight. Utilization rates for key construction inputs are already high, while industrial metal prices have soared and labor shortages are back to their highest levels.
In the past, milder increases in demand combined with high utilization rates have led to substantial price increases, well above underlying inflation, and generated significant profit upside for industry participants. Prices of key construction inputs went up 30%-40% in four years, more than doubling the combined profitability of key producers.
Historically, market participants have tended to be reactive to situations of profit expansion, but they currently have a window of opportunity to invest tactically before production capacities are saturated and profits surge.
In this report, we identify:
- The bill’s allocations across different categories of spending
- The broader demand context (residential, commercial outlooks)
- Current limitations in supply, which are likely to worsen
- Similar dynamics that occurred in the 2003-07 time frame, although to a lesser extent
- How the industry was reactive to the increase in profits at the time and largely misjudged the market cycle
- The actions that market participants can take to proactively position themselves ahead of the surge in demand, while anticipating a tapering in demand in 2025-26