Capturing a snapshot of the concrete construction industry that most people would agree is accurate is no small challenge. The industry's inherent complexity combined with ever-changing external forces make coming up with numbers to define the concrete construction industry a nearly impossible task. And yet, we try.
This year demonstrates key trends that many organizations within the construction industry are tracking. Most groups known for tracking the construction economy see a slowing of the residential housing boom, continuing upward pressure on material prices, and sustained strength in the nonresidential sector.
For information relating to concrete in particular, the standard sources are the Portland Cement Association (PCA) and the National Ready Mixed Concrete Association (NRMCA). PCA collects data on cement production, including imports, and its use throughout the country. NRMCA gathers information from its member firms, which provides a good picture of the concrete industry from the perspective of ready-mixed concrete producers. The background information underpinning both of these forecasts is provided by two federal entities: the U.S. Census Bureau's Department of Commerce and the U.S. Geological Survey of the U.S. Department of the Interior.
The Commerce Department most recently reported that through August 2006 total construction spending for the year was running 7.2% above the same period in 2005. That translates to a seasonally adjusted annual rate of $1.2 trillion, which is 4.4% higher than the 2005 estimate for this time last year. However, the numbers require some interpretation, which is one of things PCA does so well.
In its 2006 summer forecast, PCA pointed out the effects on construction of continued high oil prices, increasing inflation, and rising interest rates. The forecast projects that by year's end the 2006 gain should be more like 1.5%. A more recent PCA report, from early September, noted that its forecast contains “considerable downside risk.” In short, it looks like the erosion in residential construction may have a larger effect this year than earlier predicted.
On the positive side, though, non-residential construction is up from last year, a hefty 17%, which is helping to prop up the year's overall numbers. Furthermore, nonresidential construction tends to have a higher cement intensity, which is measured in tons of cement per dollar of construction activity. This translates into not only greater levels of cement consumption, which is good for concrete producers, but also an increased percentage of higher-priced work, which is good for contractors.
NRMCA reports confirm the general picture. Based on cement shipments reported by the U.S. Geological Survey and other data, NRMCA at mid-year showed 2006 production running about 5.4% ahead of last year. Based on second quarter numbers, the total production of ready-mixed concrete for the year is projected to be in the neighborhood of 482 million cubic yards.
Another factor affecting construction in general has been the rising cost of construction materials. Ken Simonson, chief economist of The Associated General Contractors of America, warned in late September that the inflation rate for construction materials may be 6% to 8% or more in the near term—double the rate of overall inflation.
Even so, the latest market news is good. Reports just now being released show that August construction spending was up 0.3% when a drop had been expected. Private nonresidential construction led the movement, with a rise of 3.4%. Factoring in public nonresidential work, the rise was 2.3%.
How big is the concrete industry?
Having looked briefly at the health of the industry compared to last year, we turn to the larger question: Just how big is the concrete industry? Many specialty types of concrete construction, such as tilt-up and ICF construction, continue to expand the concrete market. But for an overall picture of the concrete construction industry, a reasonable estimate can be derived from data found in several Hanley Wood studies. Principal among these are Concrete Construction's “2006 Buying Practices Study” and the “CC100”—our list of the top 100 concrete contractors in the United States.