structures and equipment, which would be beneficial for electrical dis- tributors. But possible elimination of property tax deductions and a steep increase in the standard deduction would make the tax treatment of home ownership much less favorable, potentially cutting into the market for electrical products that go into home building and remodeling. Additionally, unless the package is structured to keep the deficit from ris- ing sharply, there is a risk that deficit increases would push up interest rates enough to jeopardize both business investment and state and local gov- ernment bond issuance for infrastruc- ture and building projects. As of now, enactment appears to be a long shot, with congressional Re- publicans divided and Democrats unanimously opposed.
• Infrastructure spending.
As a candidate, president-elect, and presi- dent, Donald Trump has frequently promised massive increases in infra- structure spending. However, he has yet to suggest how such spending would be financed or allocated among project types or states and localities. And his initial outline of spending proposals for fiscal 2018 would reduce or eliminate several forms of federal support for construction spending: so- called TIGER grants for highway and intermodal projects and funding for rural water and wastewater systems, low-income housing, and regional development commissions. As with the tax proposals, initial congressional reaction to the spend- ing cuts was largely unfavorable. But it does appear that Congress will at least trim several categories of outlays to fund defense spending increases. Enactment of the appropriations bills that set spending levels is unlikely before October, meaning that electri- cal distributors that depend in part on these programs for revenues will face more months of uncertainty.
• Trade policy.
This is another area of shifting signals. After repeat- edly calling the
North American Free Trade Agreement
a “disaster” and threatening to withdraw from it, the president announced on April 26 that he would not do so “at this time.” But that announcement followed just a day after Commerce Secretary Wilbur Ross announced the imposition of 20% tariffs on Canadian softwood lumber, a step the National Associa- tion of Home Builders said would add several hundred dollars to the price of new houses. Perhaps more problematic for elec- trical distributors, the government has moved to limit imports or impose duties on steel and aluminum prod- ucts. The administration has also threatened to apply “Buy American” provisions more broadly to projects receiving federal funding and perhaps even to construction that requires fed- eral permits, such as “Section 404” permits for stormwater runoff. These trade actions threaten to drive up prices or limit availability of many products electrical distributors carry. Furthermore, if the countries that are the target of these moves take countermeasures, U.S. businesses that export to those nations could find their markets shrinking, which could cut into sales of the distributors that serve those firms and countries.
Construction on Pace, So Far
Electrical distributors and their cus- tomers are among many sectors that may have benefited from some of the regulatory rollbacks, relief measures, and freezes that the administration and Congress have taken since Inau- guration Day. However, some of the steps may deliver less than they ap- pear to, either because of state and local regulations or because undoing a rule that is already in effect can take as many steps and years as promul- gating it required. For instance, the president reversed President Obama’s order blocking the Keystone XL oil pipeline from Canada to the Gulf Coast. But the pipeline is unlikely to start construction until state regu- latory hurdles in Nebraska are resolved. In short, any of these policy initia- tives could affect the course of the economy and of demand for electrical products and services. But so far, there is little evidence that they have made much of a difference or will do so imminently. The limited data for 2017 to date suggest that demand is running close to the pace of 2016, at least from the construction sector. Construction em- ployment in March was 2.4% higher than a year earlier. Construction spending year to date in the first three months of 2017 combined was 4.9% ahead of the first-quarter 2016 pace, without adjusting for inflation. And the preliminary GDP figures show a huge 22% jump from the last quarter of 2016 to the first quarter of 2017 in private real investment in nonresiden- tial structures at an annual rate, along with a 14% rise in residential invest- ment. (In contrast, government real investment in structures plunged at a 15% annual rate.) As in 2016, the hottest construction segments in early 2017, based on Census Bureau spending data, were office construction, up 21% year to date through March compared with the first quarter of 2016; commercial (which Census defines as retail, ware- house, and farm construction), up 14%; and lodging, up 13%. However, none of these growth rates appears to be sustainable for the full year. Office and lodging construc- tion both grew 25% from 2015 to 2016, after logging double-digit growth in 2015 as well. The spending numbers declined for both categories from November through March, and demand for new buildings may be nearing saturation. There is still de- mand for warehouse construction, especially self-storage centers and “click and collect” facilities inside metro areas that allow same-day pickup of items that have been or-
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