The economic forecast for the construction industry is gloomy. But get past the short-term period, and you'll find the long-term view much more favorable.
Construction industry economic experts who addressed the CONCRETE PRODUCER's Economic Summit Luncheon offered a gloomy forecast of the concrete industry's prospects over the next year or two, but agreed that long-term demographic trends are favorable.
The event at World of Concrete featured Ed Sullivan, chief economist with the Portland Cement Association; Jonathan Dienhart, director of published research with Hanley Wood Market Intelligence; and Pierre Villere, president of event sponsor Allen-Villere Partners.
Sullivan predicts a severe retrenchment, with demand for concrete weakening just as substantially increased production capacity comes online. He expects that it may be the third quarter of 2009 before the recovery begins in earnest.
Meanwhile, for the rest of this year and the first half of 2009, Sullivan predicts declines in both the commercial and public construction sectors that have so far helped temper the severe residential downturn of the past year.
This is merely a painful part of the business cycle, payback for the excesses of the previous boom. But Sullivan also emphasized that long-term population trends will lead to growth in construction spending and that long-term cement consumption will grow. He urged attendees to add an extra dose of conservatism to their business plans for the next year or two.
“Batten down the hatches,” Dienhart advised. He described a housing market that has been disconnected from its traditional drivers for the last few years, with inventories growing as population and job growth declined. The current excess housing inventory of 750,000 units (a nine-month supply assuming no new construction) must be sold before the mortgage market can stabilize and the housing market can recover.
Villere focused on longer-term and far rosier prospects in 2030 and beyond. His presentation drew strongly on a 2005 report by the Brookings Institute called “Toward a New Metropolis: The Opportunity to Rebuild America,” whose conclusions are driven by projections of the U.S. Census Bureau. Population and other demographic trends will drive greatly increased demand. By 2030, one-half of all buildings in the U.S. will have been constructed after the year 2000.
Villere also anticipates continued consolidation among concrete producers, with the top 25 producers in the U.S representing 80% of the market by 2015. Of those, the top 10 will represent more than 50% of production.
He foresees significant improvements in fleet efficiency, significant impacts from technological advancements, and more sophisticated marketing that will play a key role in growing the industry. Permitting and compliance will become even more daunting factors for producers in the future, and human resources will continue to be a challenge.
Someone in the audience asked Sullivan if the concrete industry has any advantages that could help it prevail over competitors during a recession. His reply was less encouraging than attendees might have hoped.
Concrete offers theoretical advantages that are likely to be overshadowed during a recession. Sullivan pointed to the paving market, where concrete's lower long-term, lifecycle cost is an advantage. But in the short-term, DOTs faced with lower revenues are likely to find the lower initial costs of asphalt quite attractive.
— Kenneth A. Hooker, a freelance writer and a former editor of Hanley Wood's MASONRY CONSTRUCTION magazine, is based in Oak Park, Ill.