The single-family housing boom has been on an unprecedented roll that is likely slowing down, admits Edward J. Sullivan, chief economist with the Portland Cement Association, Skokie, Ill.
But in his presentation to attendees of the C&D World Expo, which took place in Miami in mid-January, Sullivan predicted that what the overall construction sector loses in single-family development it will probably gain back as both commercial construction and public spending on highways rebounds.
The consumer sector, which Sullivan says now accounts for nearly 70 percent of economic activity in the U.S., has buoyed the construction and demolition industries with frenzied spending on new homes in the past several years.
Spending overall from consumers may slow down for a number of reasons, including increased energy prices and an exhaustion of home equity credit lines that have been spent to the maximum by many consumers.
Contractors, however, are benefiting from the passage of a new federal transportation bill in 2005, which has put into motion a number of projects in almost every state that were waiting for federal funding to come through.
Additionally, the solid consumer economy of the last few years has put money in corporate coffers, with businesses ranging from retailers, manufacturers and service providers such as hotel chains now flush with cash that is being re-invested in new projects.
Increased commercial activity, combined with renewed highway spending, is leading to building projects that are especially heavy in their use of concrete, steel and other heavy-duty materials. “For every $1 of construction activity now, we are using more and more concrete,” remarked Sullivan, comparing this type of activity with residential construction.
One potential hurdle within the construction segment is a possible cement shortage, says Sullivan. Cement demand in the U.S. is increasing, but supply has been stagnant and even moved backward after damage to Gulf Coast plants during the 2005 hurricanes. The U.S. is now dependent on imported cement, which could be hard to come by if overseas economies remain active.
Another longer-term economic issue concerns the tapped-out American consumer, particularly in the wake the home equity lending boom and the interest-only mortgage activity of the past couple of years. Sullivan notes that a lot of these “exotic mortgages” come due in 2006 and 2007, and when they do, a great many U.S. households could find themselves in a difficult cash flow position.
But “even with all this,” Sullivan sees subdued but sustained growth for the U.S. economy in 2006 as measured by both job creation and gross domestic product.
The C&D World Exhibition & Conference took place Jan. 15-17 in Miami. It is the official show of the Construction Materials Recycling Association and is managed by GIE Media Inc., publisher of Construction & Demolition Recycling magazine.