Ed Sullivan, chief economist and senior vice president of market intelligence at the Illinois-based Portland Cement Association (PCA) , has predicted a United States economy that will demonstrate resilience in the first half of this year but that will begin to show slowing effects from higher interest rates later in 2023.
Speaking at the World of Concrete event in mid-January in Las Vegas, Sullivan said that with the economy showing more near-term resilience, the Federal Reserve Bank may yet be more aggressive with rate hikes. Given the timing lags associated with Fed actions, the economic fundamentals will eventually weaken. However, a recession characterized by unemployment of 6 percent is unlikely, according to Sullivan.
Sullivan also predicted construction in the private sector—which was down in 2022—is expected to take another tumble in 2023. However, strong order books may cushion cement consumption decline until the second half of this year, he added.
In terms of new construction via the U.S. government’s infrastructure law, Sullivan said it will likely be softer than many are expecting this year. Inflation, state construction spending reductions and typical spending patterns associated with allocations were cited as principal reasons.
“When looking at the big picture of real construction spending and cement consumption this year, we should expect both volumes to soften throughout the year, with significant declines in the second half of 2023,” Sullivan said. “The downturn is expected to be short-lived as interest rates ease slightly and stronger infrastructure volumes materialize in 2024 and beyond.”
In a 2023 forecast Sullivan released in October of last year, Sullivan commented, “Due to inflation and rising interest rates, economic growth is expected to remain sluggish through mid-2023 with unemployment reaching 4.7 percent. Inflation is expected to remain high, leading to further monetary policy tightening through this year and into early next.”
At the 2020 ConExpo-Con/Agg event, which took place just as the U.S. was introducing COVID-19 virus restrictions, Sullivan predicted a best-case scenario of about two months of economic disruption. Prolonged virus exposure and restrictions, he also predicted, would more deeply hit the American household consumer, “who accounts for two out of every three dollars” spent in the U.S. economy.
Three years later as Sullivan looked at the impacts of COVID-19 at his January presentation, he said the retail construction market has been the most deeply affected, although from 2020 to 2022 the pace of office, hotel and education construction also fell below earlier forecasts.
Any genuine recovery in those nonresidential construction sectors is unlikely in 2023, and is predicted by Sullivan to be modest in 2024 before gaining some momentum in 2025.
In terms of state budgets, several states are planning to spend 10 percent or more from their general funds this year compared with 2021, including California, Florida and New York. On the infrastructure side, however, Sullivan predicted, “There will be a wait before [concrete] pouring will begin,” citing lengthy paperwork and contract bidding processes.
When that spending does start, Sullivan sees cement- and aggregates-intensive highway and bridge projects accounting for nearly 17 percent of the spending, with airport projects accounting for another 5.8 percent.
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