This story was originally published in Concrete Construction.
Portland Cement Association Senior Vice President and Chief Economist Ed Sullivan delivered his highly regarded forecast during the 2019 World of Concrete. We’re due for a recession, he says, but don’t panic yet. Continuing late-cycle expansion is expected to maintain economic momentum in the near term – at least through 2019.
Ironically, factors that contribute to strong growth also create challenges. Seven consecutive years of job growth increases state and local tax revenues as more workers consume more goods, but also increases wages – 22% since the bottom of the recession and an average annual rate of 2.5% – as employers compete for a finite supply of skilled labor. The shortage is particularly painful for the construction industry, where productivity remains flat.
All construction markets benefitted from historically low federal interest rates, but the Federal Reserve is expected to gradually increase rates through 2020 to meet its mandate to tamp the potential for inflation. As long as unemployment is below 4% and inflation is above 2%, the Fed will raise rates. Unemployment is expected to be 3.6% this year an 3.5% in 2020; inflation, 2.5% and 2.6%, respectively. PCA’s “Goldilocks Zone” – the organization’s term for the ideal balance of labor and inflation – is 4% unemployment and 2% inflation.
Additionally, home prices are rising, increasing a key source of wealth for many Americans: equity. But with mortgage rates also on the upswing, housing affordability is beginning to deteriorate, which will slowly erode residential cement consumption. In fact, PCA expects the pace of overall cement consumption (slated to grow by 2.6% in 2019) to slow each year through 2021. Even so, it will probably take some time for economic growth to unwind.
In 2022, interest rates are expected to reach their apex and recede slightly. At about this time, President Trump’s supplemental infrastructure initiative is expected to materialize. These two factors imply there then will be a gradual acceleration of cement consumption.
This story was originally published in Concrete Construction.
