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PCA downgrades construction forecast

Although not technically in a recession, the Portland Cement Association (PCA) predicts that an increasing unemployment rate, higher inflation, and low consumer sentiment will combine to have lingering negative effects on the U.S. economy and, hence, on cement consumption and the construction industry. The latest PCA forecast of cement, concrete, and construction predicts a 12-percent decline in cement consumption in 2008, followed by another 6 percent drop in 2009.

"Real construction activity is expected to decline 9 percent in 2008, and another 7 percent in 2009," Edward Sullivan, PCA chief economist said. "The combination of high home inventories, weak economy-wide demand conditions, and poor state budget conditions will hit all sectors of construction—residential, non-residential, and public."

Although PCA had expected a downturn in non-residential construction to occur in the third quarter of 2008, this sector is working on the backlog of projects already under contract and seems consistent until closer to the end of the year. However, the trend in contract awards for the future is alarming.

"In the first five months of 2008, there was a 29-percent decline in non-residential contract awards. If these trends hold true, a similar intensity will materialize in 2009," Sullivan said.

The majority of cement consumption occurs in the residential and public sectors, each facing unique challenges. High inventories will suppress housing starts and residential cement consumption until 2010. State budget shortfalls attributed to increased spending in entitlement programs such as Medicare and decreased revenue from job losses will result in a 4.8-percent drop in cement consumption by the public sector in 2008, followed by two additional years of decline.

PCA predicts a recovery to begin in 2010, but more modest than previously forecasted. Total cement consumption in 2010 is expected to increase 2.7 percent from 2009 levels.