The construction industry should largely experience slow but steady growth in 2016. But question marks remain, such as the impact of falling oil prices, the slowing economy in China, and the ongoing shortage of construction labor, said Edward Sullivan, chief economist with the Portland Cement Association.
Sullivan presented his annual U.S. Cement Outlook at World of Concrete. “The underlying fundamentals suggest everything is good,” said Sullivan. “The fundamentals are still sound and we should be able to withstand these minor issues.”
The economist forecasts 5% growth in cement consumption this year, followed by a 5.7% jump in 2017. This comes after increases of 8.7% in 2014 and 3.5% last year. Also, U.S. gross domestic product likely grew at a 2.4% clip in 2015, and will grow at 2.6% this year, he added.
While cheaper oil and resulting gasoline prices do benefit consumers, they may reduce cement consumption this year by 0.5%. That’s because for every ton of oil well cement that is not used, three tons of “collateral” cement use goes away, Sullivan said. Consumers largely use the money they save at the pump on services such as restaurants and vacations, but “more substantial impacts will take a while to develop.”
Another concern is labor shortage. During the Great Recession, 2.9 million U.S. construction workers lost their jobs. Also, 500,000 Mexican-born construction workers returned to Mexico. “This long, slow recovery creates a skills gap,” he said.
Another drag on the construction economy is the slow pace of the Millennial generation getting married, starting families, and buying homes. While more than 17% of Millennials owned homes a few years ago, only 13% do today.
Although the $305 billion FAST highway bill that Congress passed last year was “inadequate compared to what faces us,” Sullivan said,” the highway bill is still better than where we were.”
Finally, plunging oil prices have not resulted in similarly low asphalt prices. “We still have a cost-competitive product,” Sullivan said.