Harsh residential decline slows growth in cement consumption

News Portland Cement Association September 29, 2006
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Although many regional markets throughout the U.S. experienced strong cement consumption growth earlier this year, a new forecast from the Economic Research department at Portland Cement Association (PCA) expects the second half of the year to be quite different.

In the state-by-state forecast presented recently at the PCA Committee Meetings in Chicago, Chief Economist Ed Sullivan predicted that the emerging weakness in residential construction will dissipate the strong growth recorded earlier in the year in many regional markets.

"In July, 24 states showed significant declines in housing permit activity, including traditionally strong markets such as Nevada, Florida and Arizona," Sullivan said. "I do not believe these declines will be temporary."

According to the Summer PCA forecast, Sullivan expected housing starts in 2006 to decline by 10.6%, followed by a similar decline in 2007. PCA's most recent forecast points to high new home inventories, raising interest and inflation rates, and slower net job creation as contributing factors to an even greater residential slow-down.

The decline in residential building was not unexpected. However, according to Sullivan, the nonresidential and public construction sectors are not experiencing the growth rate predicted earlier this year. "Underlying drivers for the nonresidential sector are improving, but at a slower rate," Sullivan said.

Year-to-date, U.S. cement use is up 5.6% over 2005 levels. PCA's summer projections indicated that second half weakness in residential would push the 2006 growth rate to 2.3% and to 1.2% in 2007.

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