Investment Institute
Macroeconomic Research

Could the U.S. presidential election endanger an investment boom?

  • 25 June 2024 (10 min read)
KEY POINTS
President Joe Biden’s administration enacted three policies across 2021 and 2022 which provided a fiscal boost of around $1.5trn, creating incentives for long-term investment.

Recent investment spending has remained robust, defying usual cyclical patterns and the impact of higher interest rates. It is difficult to disaggregate investment intentions from trade and geopolitical tensions and supply chain security, but corporate investment intention surveys are consistent with a boost to investment from these policies.
We illustrate the scale of the investment increase and show how overseas investors have also increased investment in the U.S., likely in part a response to these policies.
November’s election may affect this outlook. Yet, we believe a second Biden term would not see material adjustment. Equally, a Donald Trump administration may not necessarily repeal all these policies, at least to the extent expected by some.

An investment boost but could politics extinguish it?

The onset of the pandemic saw the U.S. endure a period of remarkable economic turbulence, but it has since transitioned to a phase of unexpectedly strong growth. One factor underpinning this trend has been the somewhat unusual, acyclical nature of investment spending. Far from exacerbating broader swings in the economy and falling sharply in the wake of higher interest rates – the traditional response  –  investment spending has remained solid. Several factors have likely contributed to this, including a post-COVID-19 rebound, the need to strengthen supply chain security, and a broader desire to onshore, nearshore or indeed, friendshore. But we believe part of this marked improvement in U.S. investment spending is the $1.5trn of infrastructure spending set out across 2021 and 2022 by President Joe Biden’s administration.

In this paper, we attempt to quantify the scale of improvement we have seen in investment spending over recent years. We identify a material boost to investment in structures, with a large share of construction spending associated with growth in the computer and electronics sector. We then consider whether this increase is endangered by the upcoming presidential election. We consider the impact that different electoral outcomes could have on the outlook for investment spending.  

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