March 2022, NRMCA Annual Convention
Originally presented by Ed Sullivan, SVP and Chief Economist of PCA
At the 2022 NRMCA Annual Convention, PCA (Portland Cement Association) Senior VP and Chief Economist, Ed Sullivan presented the US economy, construction, and cement consumption outlook. The direction of his forecast is largely determined by the influence of inflation and is within the context of the current strength of the economy – historic low unemployment (3.6%) and low household debt service ratio (5.8%). Household debt service ratio is defined as debt as percentage of disposable income.
Ed Sullivan projected that inflation will remain elevated in 2022 and 2023. The decline of COVID added to the increase in consumer demand and labor force growth restraints. However, the Russia-Ukraine war added further supply chain constraints caused by COVID. It has pushed global oil and other commodity prices even higher. Both add pressure to inflation. Inflation has a negative effect on consumer spending. To combat inflation, the Federal Reserve has been increasing the interest rate, which reduces the cement demand in the private sector. The slow growth of the private sector leads to less job creation. All these factors will reduce GDP growth.
*This forecast is under the assumption that the Fed will increase the interest rate at a quarter-point three times in 2022. Fed has moved more aggressively than the assumption. In May, the Fed raised the benchmark rate by a half-point. Powell said he and his colleagues would actively consider two additional half-point rate increases at their next two meetings in June and July, continuing a campaign that has high stakes for the U.S. economy. The aggressive interest rate hike could further reduce the GDP growth rate projected above.
The construction market growth in 2020-2021 was mainly driven by residential growth.
The residential outlook, however, predicts the hike of interest rates to push mortgage rates higher, in turn making residential housing less affordable.
The non-residential recovery process will remain slow.
He sees a slow take-off of the infrastructure spending – It will take 4 years for the big dollar to show up.
By analyzing all the factors, Ed Sullivan projects the baseline US cement consumption outlook. Under this scenario, the US economy will slow down but there will be no recession.
With such high levels of uncertainty of geopolitical conflict, he also offers two other scenarios: “War Expands” and “Everything works”.
Learn more: Ed Sullivan Spring Forecast 2022 Presentation