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March 14, 2018 02:00 AM

Investment in infrastructure could be boon for plastics

Bill Wood
Economics Editor
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    Plastic pipe for a water project in Miami in 2016.

    Few subjects are more important to the future economic health of this country than infrastructure investment. There is near-unanimous consent in Washington on this point, but the amount of rhetoric pertaining to infrastructure investment in the U.S. seems to have waned a bit in recent weeks. I will use this temporary lull in the politically motivated noise as an opportunity to offer a brief analysis on why greater investment in infrastructure is good for the economy and good for the plastics industry.

    Plastic is not typically considered to be an "infrastructure" material in the same way steel, aluminum, copper and concrete are. However, there are instances in which infrastructure-type products made from plastics (e.g. pipe for water or gas distribution) are gradually replacing products made from traditional materials, and this process may accelerate if the prices for traditional materials are pushed high enough due to any new tariffs. I do not expect the tariffs to become a significant, long-term factor for either our country or our industry, but I am not certain of this.

    The issue with tariffs notwithstanding, an increase in spending for infrastructure projects will create greater demand for certain types of motor vehicles, safety equipment, hand tools and other sundry products that contain a large amount of plastics content. The volume of plastics products at worksites is steadily increasing — I always think of portable toilets for some reason — and the number of worksites will also rise substantially.

    Most importantly, the biggest impact that increased infrastructure spending will have on the plastics industry comes from wage growth. Maybe not all construction projects will require the purchase of a lot of plastics products, but almost all construction workers live in households that will increase their consumption of plastics products if they get a raise in pay.

    If done properly, rising wages will be the most powerful and widely felt benefit to the economy that comes from an increase in infrastructure spending. And this is not just true for construction workers. Investment in our nation's infrastructure will make all of us more productive in the long run. We will become less wasteful and less annoyed by roads, bridges and airports in an obvious state of decay.

    What does the data tell us?

    Jessica Jordan

    Every month the Census Bureau releases the Monthly Construction Spending report, which contains data on the total amount of money spent on all types of U.S. construction projects. These reports contain a wide array of information that is important for the plastics industry, but for the purposes of this analysis, I will focus on the recent trends in the series for the major categories of infrastructure projects.

    On the table, I have listed the infrastructure categories by order of size in terms of the annual value of construction put in place in 2017. The amount spent on projects built for generating or transmitting power usually tops the list every year. In 2017, these projects accounted for just under $100 billion worth of construction spending.

    Spending for highway and street projects is usually in second place, with total spending last year of almost $88 billion. Annual spending on the next four categories was substantially less, though still not small. Spending in the transportation category totaled $44 billion, spending for communication projects was $23 billion, spending for sewers and waste disposal was almost $20 billion, and spending for water supply projects last year was just over $11 billion.

    Add them all up and you get a total just over $285 billion spent last year. That's a lot of money, but it is impossible to find anybody who will argue that it was enough.

    And though the amount of money already spent is an enormous figure, it does not tell the whole story. I put the monthly spending data on a spreadsheet and calculated the annual growth rates in these categories. All these growth rates are based on nominal dollars, which means they have not been adjusted for inflation.

    I was surprised, and somewhat dismayed, to discover that the total amount of construction spending for these infrastructure categories actually declined by almost 4 percent in 2017 when compared with the previous year. This can only be described as folly. The stock market was at record highs all year, the U.S. economy was in the eighth year of one of the longest recoveries on record, interest rates were at historically low levels, and yet our total investment in infrastructure projects decreased.

    The numbers in the water supply and sewage/waste disposal categories are particularly distressing. I consider all these infrastructure categories to be necessities, but none hit closer to home than water, sewer and waste disposal. The spending on our aged, and in many cases dilapidated, water supply and sewage infrastructure is not even keeping up with population growth. And no business sector is more acutely aware of our national dysfunctionality with waste management than the plastics industry.

    Obviously, any efforts to reverse the decline in spending in these categories represent enormous opportunities for manufacturers of plastics products. But while there is complete agreement that we must do something, the question always comes down to: How do we pay for it?

    The good news is that there is a large reservoir of private funds available to finance projects for which there is an ability to generate income directly. Most projects do not meet this criterion, but we must aggressively pursue private funds for those that do. Examples of this type of project are toll bridges or mobile phone access fees. Presently, the main obstacle to this stream of investment is red tape.

    The money for most of the needed projects will have to come from higher taxes and user fees. A bump in the gas tax would be a logical place to start. This will be so politically unpopular that if it is achieved, it will give new meaning to the word leadership. But I have heard all the arguments, and I have looked at the data. There are no other choices that are economically feasible.

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