PCA foresees construction slump

PCA foresees construction slump

Portland Cement Association cites inflation, interest rate hikes for 2023 slowdown prediction.

October 18, 2022

The Washington-based Portland Cement Association (PCA) has forecast a near-term demand decline of 3.5 percent for cement in the United States in 2023. Demand for cement, as an ingredient of concrete, ties into construction and highway project activity.

According to the PCA, the predicted cement demand reduction marks the first decline in 13 years and is “expected to be short-lived,” with growth returning in 2024 and beyond.

“Due to inflation and rising interest rates, economic growth is expected to remain sluggish through mid-2023 with unemployment reaching 4.7 percent,” says Edward J. Sullivan, PCA chief economist and senior vice president. “Inflation is expected to remain high, leading to further monetary policy tightening through this year and into early next [year].”

Residential cement consumption accounted for nearly 80 percent of growth in the demand for cement in 2021. This year, rising mortgage rates coupled with double-digit gains in home prices has resulted in a weakening in housing starts, and a nearly 13 percent decline is expected in 2023.

Nonresidential construction also is expected to weaken. Several sectors have not recovered from COVID-19-induced downturns in nonresidential construction, the PCA says.

“Easing economic conditions typically result in higher vacancy rates and soft leasing rates,” Sullivan says. “In the context of net operating conditions expected for 2023, nonresidential construction will likely add to the declines originating from the residential sector.”

While the federally-funded infrastructure program will provide some relief in private sector construction, its near-term influence is likely to be modest given the time required between spending allocations and actual pouring of cement, Sullivan predicts.

In 2024, PCA expects a modest recovery as interest rates begin to ease and a more significant impact could be felt from the infrastructure bill.