PCA: Home construction tied to sales

What will jump-start the home-construction market? According to the Portland Cement Association, a recovery in housing starts must be preceded by increased sales, followed by a reduction in inventory. A new PCA economic research report indicates the conditions needed for this process to begin will not be in place until mid-2010.

“Housing construction activity cannot begin until sales recover,” said Edward J. Sullivan, PCA chief economist. “Increased foreclosures, coupled with deteriorating labor markets and tight credit conditions, will delay significant sales activity until mid-2010. Improvements in housing starts are not expected to be significant until 2011.”

Although the housing recovery bill, along with bank efforts to rewrite toxic mortgages will mitigate the magnitude of potential defaults and foreclosures during the next 18 months, PCA expects a weak labor market and declining home prices will increase the number of foreclosed properties being added to the housing market inventory.

“Without further government cash injections into the banking system, tight lending standards could characterize the economy and mortgage lending through mid-2011 dragging down home sales,” Sullivan said. “Under such a scenario, the housing recovery and overall economic recovery could be delayed significantly.” -- Mark S. Kuhar

PCA looks beyond stimulus

According to John Shaw of the Portland Cement Association (PCA), additional funding for transportation and infrastructure is needed that directly addresses our deteriorating roads and bridges. “There are many commendable portions of the economic stimulus bill, but there is still much work to be done,” Shaw, PCA’s senior vice president of government affairs, said. “The best way to get America working again is through the most measurable metric – road and bridge construction. We hope that Congress will continue to address our nation’s crumbling infrastructure and continue putting Americans back to work by making transportation-related legislation a priority in the 111th session.”

PCA studies report that infrastructure funding creates jobs on both an immediate and long-term basis in all areas of the economy. For every 10 construction jobs created by a project, the community gains 17 additional jobs that stay in the region.

Repairing our nation’s infrastructure will not only add jobs, but can put money back in the pockets of motorists. According the 2009 American Society of Civil Engineers Report Card for America’s Infrastructure Americans spend 4.2 billion hours a year stuck in traffic at a cost to the economy of $78.2 billion, or $710 per motorist. Additionally, congestion on our crowded roadways contributes 27.2 million tons of carbon dioxide emissions each year.

Shaw stresses keeping the states and local agencies accountable for the money that has been allocated to them is vital to moving the economy forward. “The Administration has recognized the importance of transparency and accountability for the programs within the bill. Our infrastructure must be constructed with the highest quality materials that reduce future maintenance and ensure durability,” Shaw said. “By investing properly we can free up more money for states and communities to use for vital services like schools and police.”

For example, according to Shaw, concrete pavements can last up to 30 years or longer before resurfacing is required. Asphalt needs to be resurfaced every 8 or 9 years. “It is an economical and sustainable choice for meeting our growing infrastructure demands.” -- Mark S. Kuhar

PCA revises forecast

The weak economy and tight credit conditions, coupled with severe job losses and the resulting decline in state government revenues, will translate into significant weakness for the construction industry through 2010, leading the Portland Cement Association (PCA) to again adjust its cement consumption forecast.

The latest PCA forecast of cement, concrete, and construction predicts a 12.8 percent decline in cement consumption in 2008, followed by 11.9 percent and 2.1 percent declines in 2009 and 2010, respectively.
The PCA report cites the continued drop in residential starts and the erosion of the strong fundamentals supporting nonresidential construction as major factors leading to reduced cement consumption. The weak economy also has affected the public construction sector.

“Several economic factors are negatively influencing the construction industry,” Edward Sullivan, PCA chief economist said. “High energy prices, the sub-prime crisis, the melt-down of our financial markets, inflation, job losses and tight lending standards are combining to create weak economic conditions and the emergence of huge state deficits. Public construction accounts for nearly half of all the total cement consumption in the U.S., and states in poor fiscal condition will need to cut back on this spending.”

PCA expects cement consumption in residential to decline 31.7 percent in 2008 and 16.9 percent in 2009, but a rebound of the market in the second half of 2010 will lead to a 12.1 percent increase in consumption in that year. Consumption in the nonresidential sector is expected to decline 22.2 percent in 2009 and the public sector will see 6.6 percent declines in 2009 and 2010.

“The nonresidential construction market typically takes 18 months from the onset of better economic conditions to rebound,” Sullivan said. “With weak consumer spending, this sector will be especially hit hard in retail construction.”
PCA predicts a recovery to begin in 2011 with a 10.3 percent increase compared to 2010 consumption and a return to near-record consumption levels by 2013. Your comment?

Expect the worst

The U.S. economy is suffering from a severe economic weakness and its impact on cement consumption and the construction industry will not be mild, according to the latest Portland Cement Association (PCA) forecast of cement, concrete and construction.

In 2008, portland cement consumption is expected to drop 11 percent, followed by an additional 5.5 percent in 2009. PCA predicts total cement consumption in this year to be 101.7 million metric tons. A record consumption of 128 million metric tons was reached in 2005. Peak-to-trough declines in consumption will total nearly 30 million metric tons, marking one of the worst industry downturns since the Great Depression.

"We are currently in the third year of a four-year industry contraction that began in 2006," Edward Sullivan, PCA chief economist said. "High fuel prices, slow job creation, and tight lending standards will all adversely impact the entire spectrum of construction activity."

Sullivan anticipates that while harsh residential conditions continue to act as a significant drag on cement consumption, the nonresidential sector will also see large declines for the next two years.

"Although it grew nearly 11 percent in 2007, nonresidential construction spending is expected to fall almost eight percent in 2008 and another 12 percent in 2009," Sullivan said. "Nonresidential construction is closely tied to economic activity. As the economy softens, the expected return on commercial investments decline, reducing the incentive to build and expand."

An additional slowdown in public construction, which accounts for nearly half of total cement consumption in the United States, is predicted for 2009 and will continue through 2010.

PCA targets the second half of 2010 with the trend of strong growth in cement consumption. By this time, according to the PCA report, all regions of the United States should be experiencing a recovery in housing and nonresidential construction will be on the upswing. Your comment?

PCA: cement useage to plunge

U.S. construction activity and cement consumption will experience significant declines this year, according to a recent Portland Cement Association Economic Research report. Portland cement consumption is expected to drop 10 percent in 2008, followed by an additional 3.6 percent in 2009. Total 2008 cement consumption is predicted to be 102.7 million metric tons.

"High fuel prices, acceleration of home foreclosures, and the impact of the sub-prime crisis on credit standards are some of the current conditions that lead us to believe the economy is already in a recession," Edward Sullivan, PCA chief economist said. "Even when there is recovery later this year, it will not immediately affect the construction and cement industries."

Sullivan anticipates high home inventory levels to depress the residential sector until second half of 2009, causing a 26.5 percent decline in housing starts for 2008. The nonresidential sector, which is closely tied to economic activity, will fall seven percent. "Nonresidential construction typically takes 18 months for recovery. This implies further declines in 2009, coupled with a slowdown in public construction activity during the same period," Sullivan said.

According to the PCA report, in the second half of 2009 the economy will gain strength as residential inventories are burned off and credit terms ease. This will lead to a 5.2 percent growth in cement consumption in 2010 followed by an even stronger gain in 2011. Your comment?

Cement demand to grow

By 2030 the U.S. population is expected to reach 363.5 million persons. Supplying the needed housing, buildings and roads will lead to a 43 percent growth in U.S. cement consumption by that year. According to Edward J. Sullivan, chief economist for the Portland Cement Association, annual cement consumption will hit 183 million metric tons, reflecting a 55 million-metric-ton increase compared to the past cyclical peak level in 2005. "Sixty-three million more people will be living in the United States in 2030 and they will need homes, schools, hospitals, and roads. This construction will boost demand for cement to record levels." While 50 percent of the rise in cement consumption is due to population growth, the remaining half will be driven by per capita cement consumption. One sector that Sullivan predicts will incur large growth is highway construction. Today, this segment accounts for 30 percent of total annual cement consumption. To meet the demand of the expected additional 49 million drivers, at least 400,000 additional lane miles of highway must be added by 2030. Efforts to reduce congestion and "wasted" fuel and its associated emissions could further increase the number of miles. Additionally, energy and environmental concerns are predicted to boost cement intensities, the tons of cement per dollar of construction activity. For example, houses built with insulating concrete form walls (ICFs) can require up to 44 percent less energy to heat and 32 percent less energy to cool than comparable frame homes. As more homeowners and builders seek energy efficient houses, the insulated concrete wall market share is expected to increase to 30 percent all new homes, compared to its seven percent share today. Your comment?

Think green

By the year 2030, the U.S. population is expected to grow by 63 million—resulting in an increased demand for housing, buildings and roads. Yet, at the same time, our society is struggling to balance these construction needs today with critical environmental priorities. As part of its ongoing commitment to sustainability, the Portland Cement Association has announced an initiative to recognize public officials who take the lead in “green” building. The annual “Sustainable Leadership Awards” will honor government leaders who advance sustainable development in their communities through the use of concrete and cement-based products. PCA encourages all members of the concrete industry to submit nominations. Your comment?

PCA warns of recession

Despite recent Federal Reserve actions, the sub-prime crisis will adversely impact investment and public spending through 2010, leading the Portland Cement Association (PCA) to again adjust its cement consumption forecast. At his presentation at the PCA Board Meeting last week, chief economist Ed Sullivan announced that PCA now expects 2007 cement consumption to decline 6.9 percent, followed by a 2.5 percent decline in 2008.

Sullivan believes that as the economy weakens due in large part to the sub-prime crisis coupled with increased energy costs, overall nonresidential construction will experience declines, negatively affecting cement consumption. The housing market, according to the PCA forecast, is not expected to rebound until mid-2009.

"Our forecast anticipates the impact of a significant economic growth slowdown on the construction industry, but does not predict a recession," said Sullivan. "A recession scenario is a much grimmer picture." PCA believes the possibility of a recession materializing in the next six months is 40 percent. It expects the Federal Reserve to reduce the interest rate 75 basis points during the next three quarters. However, if the impact of the sub-prime crisis is worse than expected and energy costs hit consumers harder, a recession is possible. Your comment?

"If a recession occurs, construction spending will decline nearly 13 percent, causing a 10 percent decline in 2008 cement consumption and decreasing kiln utilization rates to 85 percent," said Sullivan. "An additional 3.8 consumption decline would occur in 2009, followed by growth in 2010."

Cement usage dips; to rebound by 2009

The serious cement shortages of the past few years really are yesterday's news. Burdened by the hard correction in the housing market, cement consumption has weakened in 2007, according to the most recent forecast from the Portland Cement Association (PCA). Cement consumption this year is expected to fall 4.4 percent lower than 2006 levels. According to PCA Chief Economist Ed Sullivan, however, the decline will be temporary, with a 2.2 percent cement consumption gain anticipated for 2008. "Sustained growth in cement consumption normally occurs when all three sectors of construction--residential, nonresidential, and public--are thriving," Sullivan said. "With the current gain trends in nonresidential and public and most regional residential markets expected to back to track by 2009, we anticipate the onset of a period of continued growth to start that year." Your comment?

Materials prices

According to the Portland Cement Association, Concrete prices in May remained nearly flat for the second straight month with a modest 0.1 percent gain, according to the Bureau of Labor Statistics' Producer Price Index. Steel and asphalt declined, 1.3 percent and 0.2 percent, respectively, but remain at high levels with steel prices increasing 13.9 percent during the past year. Asphalt prices rose 11.2 percent in the last 12 months. Concrete prices have changed at a slower rate, with a 4.5 percent increase since May 2006.. Lumber prices continued to decline with a 12.5 percent negative change from 2006. According to the spring PCA Cement and Construction Forecast, the relative price improvements of concrete compared to other materials that materialized during the fourth quarter of 2006 and has continued through recent data collections, will increase national cement intensity in 2007. Cement intensity refers to the tons of cement per dollar of construction activity. Your comment?

Materials prices rise

Concrete prices in April experienced no change, according to the Bureau of Labor Statistics Producer Price Index. Steel and asphalt continued to post the largest monthly price increases among building materials in April 2007. Steel prices grew by 4.4 percent from March to April and asphalt prices were up 1.2 percent for the month. According to the spring PCA Cement and Construction Forecast, the relative price improvements of concrete compared to other materials that materialized during the fourth quarter of 2006 and has continued through recent data collections, will increase national cement intensity in 2007. Cement intensity refers to the tons of cement per dollar of construction activity. During the past year, steel prices have increased 17.1 percent, asphalt prices, led by increasing oil prices, rose 16 percent while concrete has seen a relatively modest increase during the last year of 4.6 percent. Lumber prices from 2006 to 2007 have declined by 11 percent. Your comment?

Cement usage to decline

How things change in a year. According to the most recent forecast from the Economic Research department at Portland Cement Association, the on-going correction in residential construction is expected to drag down overall 2007 construction activity. Despite a record 18 percent growth since 2003, cement consumption this year is projected to decline by 1.5 percent. Chief economist Ed Sullivan 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 precent growth in consumption. Gains in nonresidential and public construction, says Sullivan, will not be large enough to offset the harsh downward trends in the residential market. Sullivan's 2007 projection reflects a nearly 6 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 says. Your comment?