In the summer of 1919, the U.S. military tasked a 28-year-old Army colonel to send the first convoy across the United States.
Composed of trucks and tanks, the transcontinental convoy struggled on local roads, some of which consisted of little more than mud.
Light and heavy motor trucks, touring cars, special “observation” cars, motorcycles, ambulances, and tractor trailers made up the convoy. It encountered numerous difficulties.
It took 62 days to cover 3,251 miles from Washington, D.C., to San Francisco. That works out to a pace of around 52 miles per day.
1919 Transcontinental Convoy (Courtesy of The National Archives)
But the colonel completed his assignment. And over the years, he’d conquer many more – including the liberation of Europe in the mid-1940s.
The leader of that 1919 convoy: Dwight D. Eisenhower.
Thirty-seven years later, President Eisenhower signed the 1956 Federal Highway Act.
The Act resulted in the construction of a massive, multilane highway system crisscrossing the country. The government designed the interstate system to avoid the issues Eisenhower faced during his 1919 convoy.
The federal government doled out 90% of the costs, or about $24.8 billion. In today’s dollars, that’s $272.8 billion. Local cities and counties were responsible for the remaining 10%.
The work took 36 years to finish. The government didn’t declare the U.S. highway system complete until 1992.
According to the National Bureau of Economic Research, without the highway system, real gross domestic product (GDP) today would drop by $619.1 billion – or about 2.6%.
That may not sound like a lot… But a 2.6% drop in GDP would throw the country into a recession.
So, it’s no surprise that all this infrastructure spending led to an economic boom, which would later manifest in the stock market.
Investors largely avoided stocks going into the 1950s. But after the signing of the Federal Highway Act, the country entered a 10-year secular bull market.
Between 1956 and 1966, the Dow doubled and topped 1,000 for the first time.
Now, I’m not saying the Federal Highway Act was solely responsible for the 1950s bull market. But the hundreds of billions of dollars it pumped into the U.S. economy unequivocally contributed to the economic boom.
According to the American Road & Transportation Builders Association, the interstate highway system played a major role in the nation’s 533% GDP growth over the past six decades – from $3 trillion in 1956 to $19 trillion in 2020.
In 2020, the interstate system carried nearly 75% of U.S. truck freight. And millions of vacationers and tourists travel along our interstate highways every year. Despite the COVID-19 pandemic, the tourism industry contributed $1.1 trillion to U.S. GDP in 2020.
As you can see, the interstate highway system is the backbone of the U.S. economy.
Just as the Federal Highway Act unleashed an economic boom in the United States, today’s government spending will similarly lead to another American renaissance.
Made in America Again
The trend I’m talking about is the reshoring of U.S. manufacturing.
Reshoring is the process of returning production and manufacturing back to the company’s home country. As U.S. reshoring grows, we’ll see hundreds of thousands of jobs come back to American shores.
We call this trend “Made in America Again.” And it will lead to a renaissance in U.S. manufacturing.
That’s based on four federal laws enacted over the past two years. They are:
The Investments and Infrastructure Act. This allocates $1.2 trillion to build U.S. infrastructure for a new generation of industrial facilities over the next several years.
CHIPS and Science Act. This $52.7 billion bill is hyper-focused on ensuring America reclaims its lead in semiconductor chip design.
Inflation Reduction Act. This bill provides $250 billion for clean energy technologies and new, state-of-the-art factories for building them.
COMPETES/United States Innovation and Competition Act. This is a $51.5 billion grab bag of government spending, with funds going toward increasing U.S. production and reducing supply chain vulnerabilities.
The above spending is contingent on private-sector companies completing specific projects through approved government contracts.
Much like the highway system, that initial investment today could lead to massive returns for the private sector.
According to the Reshoring Initiative, nearly 300,000 jobs were reshored in 2022. And companies have reshored more than 1.2 million jobs since hitting a low in 2010… with most of those gains coming in the last three years.
For instance, chipmaker Micron Technology has already broken ground on a $15 billion facility in Boise, Idaho.
And thousands of manufacturers have already committed to bringing billions of dollars’ worth of production home, including Intel, Absolics, and Taiwan Semiconductor.
All told, nearly 4,000 companies involved in manufacturing are looking to bring their workforce stateside.
Given the rising mentions of reshoring on corporate earnings calls, it’s clear that this trend remains in its early stages.
The World Bank estimates that infrastructure spending has a multiplier effect of 1.5. In other words, every $1 of infrastructure spending will lead to a direct $1.50 in economic benefits.
So, the $1.6 trillion in spending could lead to a $2.4 trillion immediate benefit for the private sector in the first few years.
The multiplier effect measures the impact investment or spending will have on the total economic output of something. Think of it as a snowball effect. Investing in one part of the economy can have widespread benefits in other parts of the economy.
But the economic effect could last decades. After all, the United States still generates trillions of dollars per year in economic activity from its interstate highway system.
With the reshoring trend already underway, investing in that trend is one of the best ways to preserve and grow your wealth in today’s economy.
How to Profit From Made in America Again
One way to take advantage of this trend is the Global X U.S. Infrastructure Development ETF (PAVE).
The fund has a 70% allocation to industrial stocks, 21% to basic materials, and the remaining 9% is between technology and utilities. It also yields 0.84%.
Best of all, this ETF has a stake in our favorite investment for this infrastructure spending theme, which could return as much as 312%. (Palm Beach Letter subscribers can read the details in our February issue right here.)
Bottom line: A lot of money will flow to reshore America’s infrastructure over the next few years. Allocating capital before the biggest parts of that funding get spent could lead to market-beating returns.
Analyst, Palm Beach Daily