WHEN the Portland Cement Association's Chief Economist Ed Sullivan released his spring forecast in March 2003, there were many heads shaking at the “optimistic” projections for the path of economic growth.
This skepticism was probably warranted: the military campaign in Iraq had just begun, economic growth was anemic, the economy was shedding jobs heartily, and declining consumer sentiment threatened a recession. Turns out PCA's scenario was remarkably accurate. And with each passing day, new evidence emerges that suggests the economic recovery is gaining strength, perhaps even faster than envisioned by the spring forecast.
Currently, Sullivan's forecast calls for US portland cement consumption of 105.23 million metric tons in 2004, a 0.8% increase over 2003's 104.36 million metric tons, which itself was about one percent better than 2002 levels.
Sullivan says that every year between 2005 and 2007 will see cement consumption continue to grow between two and three percent per year, setting growth records along the way
By 2008, Sullivan predicts, total portland cement consumption should top 115.13 million metric tons.
After several years of decline (down 6.6% in 2002, 7.2% in 2003, and 2.4% anticipated for 2004), cement and clinker imports will begin to see an increase to meet growing cement demand. Imports will see about a 3.0% rise every year from 2005 to 2007, according to PCA.
Sullivan attributes this healthy state of affairs to several factors, including the nonresidential market, which he sees as the growth leader in the year to come. Higher interest rates will cool residential construction, and public spending will decline slightly as states battle fiscal constraints.
“We have sustained consumer spending strength, and the investment environment has improved dramatically,” Sullivan said earlier at the Reed Construction Data's 8th annual North American Construction Forecast held at the National Press Club in Washington, DC. “Even other economists are saying the third and fourth quarters of 2004 are going to be very successful — in excess of 3.5% to 4%.”
Sullivan adds that this round of consumer strength is not due to job creation or strong, real income growth. Rather, it is because consumers have been borrowing, virtually tapping out home equity. Eighty percent of all mortgages taken out today are for refinancing activity.
However, as the economy starts to recover through 2004, mortgage rates are going to rise, suggesting downward pressure on consumer spending.
Labor markets has been at the top of Sullivan's areas to watch for economic turnaround in 2003, and he sees these markets reaching a turning point of zero job losses and zero gains in October, followed by small, consistent, sustained gains in job creation throughout 2004.
Gene Sperling, former national economic advisor and director of the Economic Council, backed Sullivan's findings that the forecasting community is bullish about the US economic recovery. He made his comments at the Reed construction meeting. Sperling is more guarded than Sullivan, however, noting, “I'm not in the pessimist camp, but I'm certainly not overly optimistic like so many others — just cautious.”
David Seiders, chief economist for the National Association of Home Builders, reported that housing has been a heroic performer throughout the entire recovery. He believes the United States can retain the levels of home sales and housing production that have been generated in recent times, which have been quite strong. However, he says he would not be surprised if the country could continue to post growth in these areas without getting reasonable job growth. He is looking for this part of the sector to fall into place soon because the 30-year mortgage rate is now heading toward 6.75%, compared to historic lows of 5.2% in June 2002.
On other fronts, residential remodeling is performing very well, according to Seiders. He says this $180 billion markets, as recorded in the first quarter of 2003, is growing. He expects 4% to 5% growth in this sector in 2003 and 2004, holding steady through 2005.
This special Modern Bulk Transporter report on construction is a joint project involving Concrete Products, and Cement Americas, both sister publications of Modern Bulk Transporter.