PCA: Congressional uncertainty could curtail future growth

With the first half of 2012 experiencing favorable weather conditions, gains in residential and nonresidential construction activity and robust gains in cement intensities, the new forecast from the Portland Cement Association (PCA) nearly doubles the expected increase in cement consumption for the year.

PCA revised its spring forecast upward, anticipating a 6.9 per cent increase in 2012 from 2011 levels, followed by a 5.8 per cent jump in 2013 and a double-digit increase of 10.9 per cent increase in 2014. The forecast points to both changes in construction activity and cement intensity as the key contributors to cement consumption growth. Cement intensity is the amount of cement used per real dollar of construction activity. Because cement usage is greatest at the early stages of a construction project, PCA estimates the drop in construction starts were responsible for roughly 75 per cent of the cement declines during the recession.

“In addition to great construction weather during the first half of the year, real put-in-place construction activity is up 4.2 per cent compared to 2011 levels,” Ed Sullivan, PCA chief economist, said. “We expect to see a 5.5 per cent gain on real construction activity this year after seven consecutive years of decline.”

According to Sullivan, one thing is certain going beyond 2012: uncertainty will characterise the near-term economic outlook and inhibit stronger growth conditions from materialising. For example, as with previous forecasts, job creation is the critical ingredient to recovery and key to healing the structural difficulties that currently face the construction market.

An erosion of consumer and business confidence resulting from the impending 2013 “fiscal cliff” can adversely affect this. Under current law, increases in taxes and, to a lesser extent, reductions in spending will reduce the federal budget deficit dramatically between 2012 and 2013‹a development that some observers have referred to as a “fiscal cliff.”

“If Congress fails to address the ‘fiscal cliff’ issue during the first or second quarter of 2013, there is the potential for severe adverse economic consequences that could slow the recovery process, potentially leading to a severe decline in 2013 cement consumption,” Sullivan said.

“PCA's baseline projections assume a ‘rational’ Congress that will recognise these risks and take action to minimise restraints on economic growth.”