- About Us
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
In March, US President Joe Biden proposed roughly $4 trillion in infrastructure spending over eight years. More recently, a nearly $550 billion bipartisan bill focused primarily on physical infrastructure spending gained support. Meanwhile, on the progressive Democratic side, Senator Bernie Sanders proposed $6 trillion in spending. In this note, I’ll highlight some of the key themes in the proposals related to physical, technological, and human infrastructure.
At the highest level, I would describe the plans as yet another signal of increased appetite for government spending in the US. While there is a wide range of potential outcomes in terms of the final dollar amounts — given the Democrats’ slim majority in Congress and the complexity of the plans — my expectation is that about $2 trillion – $2.5 trillion of spending will pass Congress by year end and that it will help sustain nominal growth in the US for several years. This is especially important in the context of the post-GFC environment, in which growth has been anemic and has tended to falter in the face of external shocks.
Infrastructure, by its nature, is linked to boosting both immediate economic growth (via investment spending, job creation, and earnings gains) and longer-term growth (by adding productivity-enhancing capacity, generating spillovers from research and development, improving education, and increasing connectivity via broadband access). At the same time, as I’ll discuss, investors will need to consider the impact of the tax hikes required to pay for the spending, as well as some potential unintended consequences of the plans.
1. Funding shovel-ready projects with more immediate impact — Maintenance and transit projects are the focus of the physical infrastructure proposals, with about $650 billion earmarked for highways, transit ports, airports, water and sewer systems, and other needs in the original Biden proposal (the American Jobs Plan) and somewhat less in the bipartisan plan (Figure 1). Public infrastructure spending in the US has been on the decline for decades, leaving a funding gap of more than $2.5 trillion by one estimate.1 From an employment and growth perspective, these shovel-ready projects can have a relatively rapid impact. Their full impact lies in the medium term. According to a recent study, a total of $737 billion in surface transportation over 10 years would add 1.1 million jobs by 2028.2 Every additional dollar invested would create $3.70 in economic growth over 20 years, adding to the productive capacity of the US economy.
2. Offering technological innovation a helping hand — The original Biden plan includes $100 billion to expand high-speed broadband, while the bipartisan plan includes $65 billion. This is primarily for rural areas of the country where companies don’t have the financial incentive to make the investment themselves. In this case, the economic payoff will be more long term, but for the Biden administration it’s about supporting grass-roots change — and particularly now that the pandemic has made the need for broad-based digital connectivity an obvious imperative. The Biden plan would also lift technology research and development spending (more on this in point 4 below).
3. Supporting growth across the economic spectrum — The Biden “human infrastructure” proposal (the American Families Plan, Figure 2) includes a host of expenditures aimed at supporting broad economic participation and thereby boosting growth. Among the largest of these are proposals to extend the expansion of the child tax credit that was part of the American Rescue Plan ($450 billion) and to provide pre-kindergarten and two years of community college at no cost ($309 billon). Some 40 million American families began benefiting from the child tax credit expansion in mid-July, putting additional discretionary dollars in the pockets of those at the lowest income level. This increase of 0.5% in spending power for those with a high marginal propensity to consume could offset some of the drop-off in fiscal support when enhanced unemployment benefit payments expire in September.
The education and workforce development proposals will have a medium-term impact. They can create inclusive growth and help those who have lost their jobs to reskill and find gainful employment. This funding could be the start of an increased focus on lifelong learning and a more fundamental shift in education to address skills mismatches — a likely factor behind the record job openings currently not being filled.
One of the key benefits of the human infrastructure proposals may be an increase in the US labor-force participation rate (among the lowest in the developed world), which, could eventually lead to higher growth in the economy. Improved access to childcare and paid leave could help close the gap in labor force participation rates between the US and other developed nations. Finding a path to citizenship for undocumented immigrants and expanding work visas could also boost the labor supply, although support for these proposals is varied.
It is important to note that while there is bipartisan support for physical infrastructure, human infrastructure is solely backed by the Democrats, and the range of asks in the plan reflects disparate priorities within the party. These divides risk disagreements and delays in the passage of a bill, putting the likely timing of a resolution in the fourth quarter of this year. There is also an ongoing discussion about expanding Medicare, another key Democratic objective, although the chances of widespread support for such a move are less clear.
4. Giving “made in America” a boost — The Biden plan called for setting aside $180 billion for technology research and development, including $50 billion to help increase US semiconductor manufacturing. While it is unclear how much will ultimately be pushed through, there is a desire to give domestic manufacturing a boost. The country’s share of global semiconductor manufacturing capacity has fallen from 37% in 1990 to just 10% today (Figure 3). In the coming decade, the US is on track to account for just 6% of incremental new capacity. By offering incentives, the government can beef up the country’s share for strategic reasons, including reviving domestic manufacturing, which has been weak since the GFC, building more resilience into supply chains, and reducing reliance on China. It is conceivable that innovation could get a boost if these programs are designed well.
5. Building up the housing supply — The lack of supply in housing has been forcing prices higher and making it harder for many young Americans to buy a home. The original Biden plan includes $300 billion for housing, schools, and buildings. While there is not much clarity yet about how this money would be allocated, this is an important area to monitor as housing is the single largest budgetary item for most families. If the plan is enacted, we could see the supply of housing rise and prices start to moderate. Some proposals on the table would expand tax credits to incentivize construction and rehabilitation of affordable housing, as well as investments in affordable rental housing.
6. Paving the path to a lower-carbon economy — One of the key differences between Biden’s American Jobs Plan and the bipartisan proposal is the amount allocated to climate-related infrastructure. Since climate change is a priority for the Biden administration, I expect that some funding will be allocated to these areas if the Democrats go it alone or fund a second bill via reconciliation.
As the world gradually consumes more electricity from renewable sources (and uses more of that electricity for electric vehicles and other new technologies), the power grid will need to be modernized. The Biden plan includes $82 billion to invest in this key phase of the energy transition, while the infrastructure plan includes $73 billion. The Biden plan also proposes an extension of many tax credits that support the renewables industry, in an effort to accelerate the transition to a lower-carbon economy (see Figure 4). Public dollars in clean energy, electric vehicle infrastructure, power grid improvements, and clean manufacturing are all part of the Biden administration’s commitment to steer the economy toward less reliance on fossil fuels.
As large as the dollar amounts in these plans are (and recognizing that the final totals are very likely to be lower), I’ve been asked by some whether the proposed spend is large enough to reverse the effects of the country’s long decline in infrastructure investment. My response is that this spending will come on top of substantial funding for state and local governments in Biden’s already enacted American Rescue Plan. State and local governments fund more than 75% of traditional infrastructure, and thanks to the meaningful grants offered under the American Rescue Plan ($350 billion), more such spending is likely through this channel. (It’s also worth noting that the bipartisan bill is in addition to the surface transportation bill, which includes funding for transit, rail, and other areas of physical infrastructure and is still making its way through Congress.)
Importantly, the kind of infrastructure cutbacks we saw after the last recession are less likely this time around, given a stronger revenue picture and more help from the federal level. For perspective, public spending on infrastructure fell 8% between 2003 and 2017, driven by a 28% decline in capital investment. It is also possible that public-private partnerships will be encouraged, enabling private companies to augment the government’s infrastructure funding, especially as the transition to a lower-carbon economy ensues.
In terms of the overall economic impact of the Biden plans, I’d note that the spending is front loaded over a shorter period and the associated tax proposals (to help pay for the spending) are spread over a longer period. That means the plans are likely to have a more stimulative effect up front, perhaps providing a lift in growth of 50 bps – 75 bps over the next few years (and alleviating concerns of a fiscal cliff). Higher growth, in turn, will put upward pressure on interest rates. If designed well, these investments should also raise US productivity over time.
I would note that as part of the persistent increase in federal spending that we would see, the infrastructure plans risk driving inflation higher once full employment has been reached. In addition, as companies, especially multinationals, are asked to pay their “fair share,” higher taxes will dent corporate profits. I am expecting some increases in the corporate tax rate, GILTI (global intangibles tax rate), and the highest personal income tax rates. An increase in the capital gains rate is also possible.
And then there are what I’d classify as the unexpected outcomes, such as the risk of poor investments given the large dollar amounts at play or the fact that infrastructure development will drive up demand for oil in the next few years — just as the focus is shifting to decarbonization and reduced fossil fuel use — and potentially contribute to an oil price spike. Keeping a close eye on the design of the proposals, including earmarks for specific projects, will be important in the coming months.
While President Biden’s first legislative accomplishment, the American Rescue Plan, was focused on helping Americans weather the pandemic and getting the economy back on track, his infrastructure proposals are geared toward driving longer-term growth. The plans could lift investment spending, shore up the poorest households, and accelerate the transition to a lower-carbon economy. Workforce development, expanded childcare, education, and a focus on technological innovation could improve productivity in the medium term, helping to lift the US economy away from deflationary forces and toward higher nominal growth and a more equitable income picture.
1Source: American Society of Civil Engineers, “America’s Infrastructure Report Card,” 2021
2Source: Business Roundtable, “Delivering for America,” January 2019
Three themes (and what they mean) for income investors
With several macro crosscurrents at play, Portfolio Manager Peter Wilke suggests that income-oriented investors not lose sight of the “big picture” in their quest for yield.
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
Credit market outlook: Expect greater opportunities in back half of 2023
Against a backdrop of elevated recession risks and banking-sector stress, Fixed Income Portfolio Manager Rob Burn identifies relative-value sector opportunities in the credit market.
Asia: A growth story with longer-term momentum
Is China’s recovery already running out of steam? Macro Strategist Santiago Millán assesses the outlook for China and Asia and sees longer-term momentum for growth.
India equity's improving risk/return tradeoff
This is not your grandfather's India equity market. Equity Portfolio Manager Niraj Bhagwat and Investment Director Philip Brooks explain why and back their argument with risk/return data.
Three macro assumptions that could be just plain wrong
Fixed Income Portfolio Manager Brij Khurana offers his non-consensus take on three entrenched, but potentially flawed, beliefs in today's market environment.
Will higher rates sap US consumer spending?
Higher interest rates have increased borrowing costs. Could a consumer-led US recession be looming? Fixed Income Portfolio Manager Kyra Fecteau sees three factors that may help mitigate the impact.
Wellington investor survey: The bears ponder whether inflation will be too hot, too cold or just right
Conducted prior to the collapse of Silicon Valley Bank, our latest quarterly survey of Wellington investors shows a majority of respondents being more bearish than the consensus view.
On to the next crisis: Glimpsing a post-SVB world
Amid the turmoil in the US banking sector, Global Investment Strategist Nanette Abuhoff Jacobson suggests investors consider pivoting to a “risk-management mode” that favors higher-quality assets. (Published 14 March 2023)
Understanding the US banking sector shake-up
Investment Communications Managers Jitu Naidu and Adam Norman detail recent US bank failures and analyze the implications. (Published 15 March 2023)
Tight money: Banks feeling the squeeze of higher rates
In this curated collection, some of our experts share their latest perspectives on the ongoing turmoil in the US banking sector and its potential implications.
SVB collapse: What are the implications?
Multi-Asset Strategist Supriya Menon shares her latest perspectives on the collapse of Silicon Valley Bank Financial Group (SVB) and the unfolding implications for investors. (Published 14 March 2023)
Deep and diverse: Welcome to today’s Asia credit market
Two of our Singapore-based experts on Asia credit discuss the market's key features, along with how it's evolved and is likely to continue doing so.
Decoding the effects of deglobalization
Nicholas Petrucelli outlines the economic, political, and geopolitical underpinnings of deglobalization. He also demonstrates the impact this trend has today and analyzes the investment implications.
Sector rotation opportunities for nimble credit investors
Following a credit market rally, Fixed Income Portfolio Manager Rob Burn still sees value in higher-yielding sectors but believes investors should stay nimble.
Russia/Ukraine: One year in with no end in sight
Geopolitical Strategist Thomas Mucha analyzes the impacts of the Russia/Ukraine conflict one year in and identifies potential longer-term effects.
European equities: a complex story
Macro Strategist Nicolas Wylenzek examines the complex prospects of European equities from both a near-term and structural perspective.
China internet: Identifying opportunities amid economic reopening
China’s re-opening and economic recovery from its zero-COVID policy has bolstered our optimism in Chinese internet companies.
Annual message from our CEO: Forward thinking
After a year of profound economic and market change, CEO Jean Hynes discusses the path forward, including the role of alternatives and sustainability, the firm's investments in talent, and the importance of stability and innovation.
US recession risk: No longer if, but when and how bad
Portfolio Managers Brij Khurana, Brian Garvey, and Nick Petrucelli believe many observers are underestimating the severity of a potential US recession this year.
China’s economy: Poised to exceed expectations in 2023
With the bar set so low for China's economy, Macro Strategist Santiago Millan thinks it won't take much for an upside surprise in 2023.
Four mission-critical investment ideas for 2023 and beyond
Multi-Asset Strategist Nick Samouilhan and Investment Strategist Michelle Ng offer their latest perspectives on the 2023 outlook and some actionable takeaways for investors.
Financial Times Moral Money Summit Asia 2022: Impact investing across public, private and emerging markets
In this replay from the Financial Times 2022 Moral Money Summit Asia, Edwina Matthew discusses key themes in impact investing.
Past results are not necessarily indicative of future results and an investment can lose value. Funds returns are shown net of fees.
Source: Wellington Management
© 2022 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.
The content within this page is issued by Wellington Management Singapore Pte Ltd (UEN: 201415544E) (WMS). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. Information contained on this website is provided for information purposes and does not constitute financial advice or recommendation in any security including but not limited to, share in the funds and is prepared without regard to the specific objectives, financial situation or needs of any particular person.
Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk. The price and value of investments is not guaranteed and may fall or rise. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. Investors should read the prospectus and the Product Highlights Sheet of the respective fund and seek financial advice before deciding whether to purchase shares in any fund. Past performance or any economic trends or forecast, are not necessarily indicative of future performance. Some of the funds described on this website may use or invest in financial derivative instruments for portfolio management and hedging purposes. Investments in the funds are subject to investment risks, including the possible loss of the principal amount invested. None of the funds listed on this website guarantees distributions and distributions may fluctuate and may be paid out of capital. Past distributions are not necessarily indicative of future trends, which may be lower. Please note that payment of distributions out of capital effectively amounts to a return or withdrawal of the principal amount invested or of net capital gains attributable to that principal amount. Actual distribution of income, net capital gains and/or capital will be at the manager’s absolute discretion. Payments on dividends may result in a reduction of NAV per share of the funds. The preceding paragraph is only applicable if the fund intends to pay dividends/ distributions. Performance with preliminary charge (sales charge) is calculated on a NAV to NAV basis, net of 5% preliminary charge (initial sales charge). Unless stated otherwise data is as at previous month end.
Subscriptions may only be made on the basis of the latest prospectus and Product Highlights Sheet, and they can be obtained from WMS or fund distributors upon request.
This material may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management.