Ed Sullivan, PCA executive vice-president and chief economist, reports that the PCA's Spring 2022 USA economy, construction market and cement consumption forecasts were given a new layer of risk with the outbreak of the Russia-Ukraine conflict.
The two external forecast considerations are COVID-19 and the Russian-Ukraine war. The war can add to inflation and affect monetary policy. COVID-19 can add to consumer confidence, if it recedes and this would raise cement consumption.
The PCA forecasts US inflation reaching seven per cent in 2022 and falling to 4.25 per cent in 2023. However, inflation will remain elevated in 2024 as compared to the Federal Reserve target of two per cent. This will impact interest rates, said Mr Sullivan.
US GDP growth is expected to halve in 2022 from 2021 to 2.8 per cent, unemployment will drop to 3.6 per cent from 3.9 per cent in 2021, but inflation will rise steeply to 6.6 per cent in 2022 and will cause the Federal Reserve to act.
The main factor driving cement consumption growth in the last two years has primarily been residential construction. In the context of rising rates, residential growth rates are likely to ease. Inflationary expectations and tapering by the Federal Reserve will determine the outcome of mortgage rates. Mortgage rates will rise while new house prices saw double-digit rises in 2021 and will be above eight per cent in 2022. Monthly mortgage payments have risen by 58 per cent since 2020.
“Single family starts are forecast to fall by 7.1 per cent in 2023. Multi-family housing will be supported by mortgage rates and will see a smaller fall of two per cent in 2023,” explained Mr Sullivan.
The Infrastructure Bill is expected to add 46Mt of cement over the next five years. However, there will be a lag in cement demand to early/mid-2023 as most of the spending for the Infrastructure Bill is offered through competitive grants. Most of the spending allocation will take four years to come through, ie 2026. States are xexpected to react by cutting back on their own spending on infrastructure while public spending on construction rises particularly from 2024 onwards.
Outlook
The US cement consumption outlook is forecast by the PCA to decline from 4.1 per cent in 2021 to 1.2 per cent in 2022 and by a further fall of 0.8 per cent in 2023. In 2021, cement consumption growth was good at 4.1 per cent and was particularly good in the southwest and the east, driven by low mortgage rates and high residential construction. But this is changing. The central US is expected to fair better with commodities, agriculture and oil driving growth.
Three alternative future economic scenarios put forward by Mr Sullivan range from a slowdown in growth but no recession, to an expansion of the Russian-Ukrainian war and a full recession, or an alternative outcome where a diplomatic solution to the conflict is found, COVID-19 is reduced and pent-up demand for cement is released. Presently, the uncertainty caused by COVID-19 has only been replaced by a geopolitical uncertainty.
