US cement demand to rise or fall depends on resolution timing

Although cement consumption and overall US construction activity increased significantly more than expected in 2012, these gains would be immediately erased in 2013 if the fiscal cliff is not resolved in a timely manner, according to the Portland Cement Association (PCA).

The PCA expects cement demand to rise 7.5% in 2012, up 50 basis points from its summer forecast. However, the instability of the political landscape makes predicting 2013 consumption more challenging, said the US cement association.

The “fiscal cliff” came about from dual economic objectives reflecting the need to inject fiscal stimulus into an inert economy and the need to deal with burgeoning federal debt. Packaged together as the Budget Control Act of 2011, tax increases of US$400bn coupled with US$200bn in federal spending cuts are scheduled to go into effect 1 January 2013. If Congress resolves the issue, the economy is expected to continue to expand and cement demand to increase 6%. However, if Congress only addresses the policies by 1Q2013, economic harm is predicted, causing a 2.7% fall in demand.

“Because we believe the odds for either outcome are even, we have adopted a forecasting approach that minimizes up and downside risk,” Ed Sullivan, PCA chief economist, said. “Our baseline scenario blends the two possible outcomes and projects a 1.8 percent increase in cement consumption in 2013.”

Sullivan also reported that the longer Congress delays in addressing the fiscal cliff, the greater the adverse affect on economic growth and construction activity in particular. “If no action is taken by mid-2013, the country could be headed into a severe recession.”