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2007 construction activity expected to wane

The on-going correction in residential construction is expected to drag down overall 2007 construction activity, according to the most recent forecast from the Economic Research department at Portland Cement Association (PCA).

Gains in nonresidential and public construction will not be large enough to offset the harsh downward trends in the residential market, said Ed Sullivan, PCA chief economist. His 2007 projection reflects a nearly six-million-metric-ton decline in residential cement consumption levels compared to 2006.

"Single-family start activity and residential cement consumption will not recover until the existing inventory level of homes is reduced," he said in the report to the PCA Board of Directors meeting March 23 in La Jolla CA.

Despite a record 18 percent growth since 2003, cement consumption this year is projected to decline by 1.5 percent. The spring forecast anticipates gradual gains throughout the second half of 2007, but not large enough to offset the year's first half weaknesses. The increased construction activity that is expected to begin mid-year, however, will carryover to 2008 and contribute to an estimated 3.9 percent growth in consumption.

Declines in construction are partially offset by rising cement intensity-the increasing use of cement and concrete in construction. Even with an overall decline in consumption, Sullivan sees a 1.5 percent increase in cement intensity in 2007. Cement intensity refers to the tons of cement per dollar of construction activity.

"Cement intensity is influenced by changes in the composition of construction, the regional composition of cement demand, and the competitive price position of concrete against competing materials," Sullivan said. "It is the relative price and changes in the composition of construction that will be key to intensity gains in 2007."

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