Ed Sullivan, PCA Executive Vice President and Chief Economist, reports that the PCA’s Spring 2022 U.S. Economy, Construction Market and Cement Consumption Forecast has been given a new layer risk with the outbreak of the Russian-Ukrainian conflict.
The two external forecast considerations are COVID-19 and the Russian-Ukrainian war. War can increase inflation and affect monetary policy. COVID-19 may boost consumer confidence if it recedes, which would increase cement consumption.
The APC forecasts that US inflation will reach 7% in 2022 and fall to 4.25% in 2023. However, inflation will remain high in 2024 compared to the Federal Reserve’s 2% target. This will impact interest rates, Sullivan said.
US GDP growth is expected to halve in 2022 to 2.8% from 2021, unemployment will fall to 3.6% from 3.9% in 2021, but inflation will rise sharply to 6.6% in 2022 and will prompt the Federal Reserve to act.
The main driver of cement consumption growth over the past two years has been primarily residential construction. In a rising rate environment, residential growth rates are expected to slow. Inflationary expectations and the gradual reduction of the Federal Reserve will determine the evolution of mortgage rates. Mortgage rates will rise while new home prices have seen double-digit increases in 2021 and will exceed 8% in 2022. Monthly mortgage payments have increased by 58% since 2020.
“Single-family housing starts are expected to fall 7.1% in 2023. Multi-family dwellings will be supported by mortgage rates and see a smaller decline of 2% in 2023,” Sullivan explained.
The infrastructure bill is expected to add 46 Mt of cement over the next five years. However, there will be a lag in the demand for cement until early/mid 2023 as most of the spending for the infrastructure bill is offered through competitive grants. The bulk of the spending allocation will take four years, i.e. 2026. States should respond by reducing their own infrastructure spending while public construction spending increases especially from 2024.
The PCA forecasts the outlook for cement consumption in the United States to decline from 4.1% in 2021 to 1.2% in 2022 and a further decline of 0.8% in 2023. In 2021, growth in cement consumption cement was strong at 4.1% and was particularly strong in the southwest and east, thanks to low mortgage rates and strong residential construction. But that is changing. The US core should fare better, with commodities, agriculture and oil fueling growth.
Three alternative future economic scenarios proposed by Mr. Sullivan range from slowing growth but no recession, to an expansion of the Russian-Ukrainian war and total 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. Currently, the uncertainty caused by COVID-19 has only been replaced by geopolitical uncertainty.
Published under Cement News