Ed Sullivan is known for being on the mark.
The chief economist for the Portland Cement Association (PCA; Booth C4113) has been named Most Accurate Forecaster a number of times by the Chicago Federal Reserve. To that end, when he cautions that the waters of the concrete construction industry in the coming year are likely to be choppy, it might be wise to consider battening down the hatches.
For the second half of 2007, while commercial contractors enjoyed a reasonable healthy market, raw material costs rose and residential construction stayed sluggish. During his annual economic forecast, Sullivan predicted that the residential construction slump will become more severe, and that it will last longer than previously expected.
"The housing crisis will be deeper and more prolonged than expected, with greater adverse consequences for consumer spending and overall economic growth," says Sullivan. The association estimated the current inventory of single-family homes on the market at 2.1 million. Sullivan predicts that slow overall growth of the economy, coupled with tighter credit conditions, will lead to a slowing of nonresidential construction in 2008, and conditions will worsen through 2010.
One economic prognosticator paints a slightly brighter picture of the construction market. In his Fall 2007 Construction Inflation Alert, Associated General Contractors of America chief economist Ken Simonson stated that nonresidential construction has weathered the housing slump well so far, and that its success could continue.
"It appears the industry will continue to expand in 2008, though most likely at single-digit rates," he says, adding that he puts the growth rate at a modest range of 1% to 5%. However, if as Simonson estimates materials prices grow by anywhere from 6% to 8% by year's end, the financial growth could be offset by higher project costs.
Other factors that could affect concrete construction:
- Cement consumption. The PCA expects this figure to increase from 2008 to 2009, and beyond.
- Aggregate use. According to the U.S. Geological Survey, use of aggregates by American concrete producers jumped in the second half of 2007; if that trend continues in 2008, more demand could equal higher prices.
- Tight public budgets. The amount of money in public-construction coffers will likely continue to dwindle,limiting the amount of money needed for building new roads, bridges, and other infrastructure.
- Fuel costs. The Energy Information Administration forecasts that diesel prices will be high, but steady.
- Jobs. Sullivan believes that continued slowness in the area of new-job creation will drag other sectors down, including construction.
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To learn more about economic forecasts for concrete construction in 2008, read "Staying in the Race" in the Dec. 2007 issue of The Concrete Producer, or visit www.theconcreteproducer.com.