Key Takeaways
- Our recently updated U.S. economic forecast, which calls for real GDP growth of 2.4% in 2024 with no recession, bodes well for U.S. airports, ports, toll roads, and mass transit providers.
- We believe activity measures across most transportation modes will likely return to near pre-pandemic historical averages, although industry-specific variables such as airline capacity constraints, trade tariffs, geopolitical conflicts, and growing cost pressures could dampen near-term growth.
- Remote work trends will continue to drag on public transit ridership, with our activity estimates showing public transit recapturing about 75% of pre-pandemic activity in 2024, 80% in 2025, and only about 85% in 2026.
S&P Global Ratings sees 2024 as a year of normalization with a return to near-historical, GDP-linked growth rates for activity broadly across the U.S. not-for-profit transportation infrastructure sector. We base our activity estimates on factors including industry trends, discussions with management teams, and our economists' view of macroeconomic conditions. We anticipate baseline economic growth will continue to propel increases in airline passengers, maritime cargo tonnage and containers, vehicle-miles traveled and toll transactions; as well as transit ridership, albeit at a slower rate.
So far, pent-up travel demand has outweighed affordability issues, as volumes for most transportation modes continued to increase to near or above pre-pandemic levels despite a material rise in costs. These cost increases were transferred to infrastructure tenants and users in the form of higher rates, fees, tolls, and charges. Favorable revenue performance due to management's willingness and ability to raise rates and demand recovery boosted financial performance, resulting in improved credit quality across the sector.
These findings are highlighted in our U.S. Not-For-Profit Transportation Infrastructure median report and can be accessed here in a new, interactive data visualization microsite by clicking here: https://www.spglobal.com/ratings/en/research-insights/sector-intelligence/interactives/us-transportation-medians. The image below is a preview.
Updated S&P Global Economics Forecast Points To Higher GDP Growth And Cooling Inflation In 2024
S&P Global Economics' real GDP growth U.S. forecast of 2.4% for full-year 2024 is slightly weaker than the 2.5% growth in full-year 2023 (according to the U.S. Bureau of Economic Analysis' preliminary estimate), but in line with the 2.4% average during the 2010-2019 expansion. Our revised GDP forecast, which is up from 1.5% in November 2023, is attributable to better-than-anticipated real GDP growth in the fourth quarter of 2023 and a jobs market that appears sturdier than expected (see chart 1).
Beyond favorable year-end base effects, economic activity in the first quarter of 2024 has been running warmer than we anticipated. Consumer spending is benefiting from a strong labor market, although there are signs it is softening. Aggregate inflation has improved significantly, to 2.6% year over year from 7.1% at its peak in June 2022, as global production, warehousing, and distribution have largely returned to normal, supported by a decrease in demand, according to the Federal Reserve Bank of San Francisco. For S&P Global Economics' updated baseline view, see "U.S. Economic Forecast Update: A Sturdy Job Market Keeps Growth Going," published Feb. 21, 2024, on RatingsDirect.
Chart 1
Most Transportation Modes Return To Near Pre-Pandemic Levels and Growth Rates, Except Transit
Chart 2 shows actual S&P Global Ratings' median activity measures for 2019-2022, a projection for 2023, and estimates for 2024-2026 across U.S. transportation infrastructure asset classes compared with the pre-pandemic 2019 benchmark.
Chart 2
Overall, we estimate annual increases across the not-for-profit transportation sector to be comparable with U.S. real GDP growth, averaging 1%-3.5% for toll roads, airports, and ports through 2026, while we estimate transit ridership will experience approximately 5% annual growth as the sector is recovering from a still-depressed base. We analyzed historical demand data from S&P Global Market Intelligence, the Federal Highway Administration, Bureau of Transportation Statistics, and The World Bank in developing our activity estimates for 2023-2026. Specifically, we reviewed 2023 actual results, 2024 estimates, and average activity-level growth for 2009-2019 to arrive at an estimated growth rate for 2024-2026. Actual enplanement and vehicle miles traveled data for 2023 support our expectation that median demand metrics will have returned to 100% or pre-pandemic levels in fiscal 2023. According to S&P Global Market Intelligence, 2023 twenty-foot equivalent unit volumes at the largest U.S. ports fell 9%, although a 3.5% rebound in 2024 is forecast. We expect tonnage will follow a similar trend.
The outlier in the return-to-pre-pandemic levels and growth rates story is U.S. mass transit, which, through March 23, 2024, is at 78.5% of pre-pandemic levels based on data from American Public Transportation Association with wide variances between regions and modes of transit. Chart 2 shows our recovery curves for transit, reflecting annualized recapture rates of pre-pandemic levels at approximately 75% for 2024, 80% for 2025, and 85% for 2026. Our 2024 activity estimate for transit is consistent with our previous estimates, which assume national ridership will not recover to near pre-pandemic levels for many years, relying more on slowly developing demographic trends rather than a full restoration of return-to-work-in-office policies and other factors.
Downside Factors Could Weaken 2024 And Outyear Growth Rates
Factors that could result in actual activity levels trending lower than we estimate include:
Weakening U.S. economy. Although our economic outlook no longer includes a recession for the U.S., a shallower, more protracted slowdown could translate into weakening in business activity, disposable income, consumption trends, and reduced overall mobility including goods transportation.
Geopolitical tensions. An escalation or spillover effect of the Russia-Ukraine war, Israel-Hamas conflict, or China-U.S. tensions could weigh on global trade, commodity prices, and travel.
U.S. airline capacity and system constraints. As passengers, airline employment, and seat capacity return to and, in some markets, exceed pre-pandemic levels, the industry will be adjusting to the downshift in demand to steady from strong growth while navigating fuel volatility, fleet issues (such as equipment downtime due to Boeing's issues and slow delivery of newer, more fuel-efficient aircraft), persistent air traffic control system constraints, and shifting service levels at U.S. airports in search of better yields.
Renewed supply chain disruptions. The risk of escalating geopolitical tensions poses threats to supply chains, which could, in turn, result in lower volumes across containers and other cargo segments along with increased trade tariffs. The shift of international trade back to U.S. West Coast ports from U.S. East Coast ports has been influenced by drought conditions in the Panama Canal region and the resolution of West Coast labor issues in August 2023. Attention now shifts to labor negotiations for U.S. East Coast ports since the current collective bargaining agreement expires Sept. 30, 2024. The last U.S. East and Gulf Coast labor action was in 1977 and the progress of labor negotiations is not easy to predict.
Higher-than-inflation toll rate increases. To the extent operators increase tolls faster than inflation, it could have the effect of reducing transaction growth.
Return to office, safety, and convenience factors. For transit providers, return-to-office policies adopted by employers, transit staffing, service levels, fare policy decisions, fare evasion, and safety could cause actual transit ridership to recover faster or slower than we assume. Should ridership trend in line or worse than our estimated recovery curve, the reliance on alternative sources of funding support will need to increase. For toll road operators who have relied on commuter traffic, growth may be inhibited by permanent hybrid work arrangements.
Related Research
- Outlook For U.S. Not-For-Profit Transportation Infrastructure: Back To The Future For Most Operators, While Mass Transit Minds The Gap, Jan. 10, 2024
- U.S. Transportation Infrastructure Airport Update: The Industry Is Cleared For Takeoff, With Cost Pressures On The Horizon, Nov. 7, 2023
- U.S. Not-For-Profit Transportation Infrastructure 2022 Medians: Demand Recovery And Management Actions Powered A Financial Rebound, Oct. 18, 2023
- U.S. Transportation Infrastructure Transit Update: End Of The Line Nears For Federal Assistance As Low Ridership Pressures Operators, Sept. 28, 2023
- U.S. Highway User Tax Bond Report Card: Strong Coverage Drives Rating Resiliency, Sept. 28, 2023
- U.S. States Jump Start Electric Vehicle Charging Infrastructure, Sept. 21, 2023
- U.S. Transportation Infrastructure Toll Sector Report Card: Resilient Demand And Higher Tolls Underpin Credit Strength, Aug. 17, 2023
This report does not constitute a rating action.
| Primary Credit Analyst: | Joseph J Pezzimenti, New York + 1 (212) 438 2038; joseph.pezzimenti@spglobal.com |
| Secondary Contacts: | Kayla Smith, Englewood + 1 (303) 721 4450; kayla.smith@spglobal.com |
| Kurt E Forsgren, Boston + 1 (617) 530 8308; kurt.forsgren@spglobal.com | |
| Quinn Rees, New York 2124382526; quinn.rees@spglobal.com |
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