Highway Spending Faces Another Year of Decline

Market Update

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Highway Construction's Bump in the Road

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The U.S. construction, cement and concrete markets are poised for another year of contraction. Even in the wake of recent interest rate cuts by the Federal Reserve, lending rates for commercial and home buyers remain high. With the private-sector subdued, any potential for growth this year will hinge on sectors less sensitive to interest rates.

While onshoring and data center construction have emerged as bright spots within the U.S. cement market, their overall impact remains limited in a 100 million-metric-ton cement industry. The burden of near-term growth now falls on public construction - particularly highways. 

Unfortunately, real highway spending has already entered its second consecutive year of decline, with another modest one expected next year.  Coupled with a subdued recovery across residential and nonresidential markets, it suggests another challenging year lies ahead for those in the cement and concrete industries.

This article lays out the reasoning behind this conclusion and what that means for the 2026 outlook. Keep in mind, the conclusions presented here reflect national trends.  Regional trends could be much different depending on unique market conditions and the state level.

Public Construction

There is no shortage of demand for public infrastructure. As the population and economy grow, more demands are placed on public infrastructure. Infrastructure is critical in providing the efficient flow of commerce as well as providing public health, safety, and education to our populace. Yet history shows that infrastructure investment often fails to keep pace – leading to infrastructure deterioration, deferred maintenance, and reduced public benefit.

The American Society of Civil Engineers (ASCE) periodically provides a “Report Card” on the state of the nation’s infrastructure, and it shows there is a clear need for increased investment in our infrastructure.  ASCE estimated it would require $9.1 trillion in real (2022) dollar spending to bring the nation’s infrastructure into a “state of good repair“ by 2033.

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ASCE's Report Card on America's Infrastructure

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While the ASCE’s report demonstrates abundant demand, the constraint lies with funding.  Most infrastructure spending depends on federal and state financing, with some support from local governments and private sources.  On the federal side, the Infrastructure, Investment and Jobs Act (IIJA) – enacted in 2021 – was intended to serve as the primary engine for revitalizing public works. The law authorized $1.2 trillion in funding public infrastructure construction activities between fiscal year 2022 and fiscal year 2026.

The funding was based on price levels that prevailed in 2021. Unfortunately, inflation was elevated during this period.  Highway construction cost inflation rose at a rate at least double the national inflation rate (CPI).  When high inflation rates are applied to fixed nominal levels of spending, it dilutes the spending power of the program. According to our estimates, $100 billion in highway spending based on 2021 (the start of IIJA) buys $51 billion in today’s dollars - effectively cutting the potency of IIJA’s highway commitment in half. Inflation will continue to erode its potency through the remainder of 2026. 

State funding faces similar headwinds as it typically relies heavily on state fuel tax receipts. Often these fuel taxes are fixed over long period of time – thereby exposing these funding schemes to the ills of high inflation. While state highway funding is sometimes supplemented by other mechanisms, fifteen states have employed fuel tax indexing[1].

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