The U.S. Construction Sector's Hidden Strength: Public Infrastructure as a Safe Haven

The U.S. construction sector faces a stark divide: while private residential construction sputters under the weight of high mortgage rates, public infrastructure projects fueled by federal funding are thriving. This divergence creates a compelling investment narrative—allocating capital to firms tied to government-backed initiatives in sectors like water, power, and manufacturing could yield robust returns, even as broader construction activity slows.

The Public-Private Divide
Recent data underscores the growing chasm between public and private construction. Public infrastructure spending reached a seasonally adjusted annual rate of $487.6 billion in May 2025, a 0.5% increase from April, driven by education and highway projects funded by the Infrastructure Act. Meanwhile, private residential construction dropped to $918.2 billion—a 0.2% decline from April—amid mortgage rates near 7%.

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The Infrastructure Investment and Jobs Act (IIJA) and CHIPS and Science Act are the primary engines of public-sector growth. The IIJA's $62 billion FY2025 allocation targets transportation, clean energy, and water infrastructure, while the CHIPS Act's $52 billion semiconductor manufacturing fund has already disbursed $36 billion to companies like Intel and TSMC. These programs are creating demand for firms specializing in water infrastructure (e.g., pipe replacement), grid modernization, and advanced manufacturing—sectors insulated from the housing market's volatility.

This contrast highlights the opportunity: firms exposed to federal projects are outperforming their residential peers. For instance, Macquarie Infrastructure Corporation (MAC), which manages toll roads and utilities, has risen 18% year-to-date, while KB Home (KBH) has declined 9% amid weak residential demand.

Why Public Infrastructure Holds Up
Three factors underpin the resilience of public-sector construction:
1. Funding Certainty: The IIJA and CHIPS Act provide multiyear budgets, shielding contractors from cyclical downturns.
2. Demographic Tailwinds: Aging infrastructure and climate risks are driving demand for upgrades in water systems and energy grids.
3. Policy Momentum: Bipartisan support for infrastructure spending remains strong, even as political shifts occur.

The Congressional Budget Office (CBO) projects housing starts will decline to just 0.78 million annually by 2053 due to an aging population and lower immigration—a stark contrast to the 1.59 million average through 2033. This long-term weakness reinforces the case for focusing on replacement demand in public projects, such as rehabilitating aging bridges or expanding renewable energy capacity.

Investment Strategy: Targeting the Safe Havens
Investors should prioritize companies with exposure to federally funded sectors:
- Water Infrastructure: Firms like American Water Works (AWK) or contractors specializing in pipe replacement (e.g., AECOM (ACM)).
- Semiconductor Manufacturing: Lam Research (LRCX) and Applied Materials (AMAT), which supply equipment to CHIPS Act-backed factories.
- Grid Modernization: Utilities like NextEra Energy (NEE) and engineering firms such as Bechtel (BEBT).

Avoid overexposure to residential builders unless mortgage rates drop below 6%—a scenario the CBO estimates could add 180,000 annual housing starts by late 2025. Even then, long-term demographics suggest sustained underperformance in housing.

Conclusion
The U.S. construction sector is bifurcated, but the path to profit is clear: public infrastructure projects are a bulwark against the private residential slump. With federal spending on track to hit $1.8 trillion by 2030—and sectors like water and energy modernization still underpenetrated—investors who pivot to government-backed firms will position themselves to capture growth amid a challenging environment. The construction sector's future lies not in bricks and mortar for homeowners, but in the steel, wires, and pipes rebuilding America's backbone.