In his summer U.S. Cement & Construction Forecast, Ed Sullivan, chief economist with the Portland Cement Association (PCA), predicted the housing market would not improve until late 2008. While he did not forecast a recession, he expected to see less nonresidential and public construction than previously anticipated.
So, what exactly does this mean for producers?
To help the industry interpret the subtleties of economics, PCA for the first time presented Practical Application of PCA Economic Forecast and Market Assessments. The seminar helped producers decipher forecasts, understand what was behind the reports, and decide how to use the complex projections as planning tools.
“Even if companies have the right software, they can't just push a button and expect easy answers,” Sullivan explained. “It requires analytical expertise to get precise forecasts.”
“If I were sitting in your seat, how would I use the PCA forecast?” Sullivan asked. Then, aided by PCA's team of economists, he explained how their reports are compiled and how producers can use this information for their near- and long-range strategies.
Other experts also spoke. Hendrik van Oss, a geologist from the U.S. Geological Survey (USGS), summarized his agency's process for compiling cement data surveys. He stressed his reports are only as accurate as the information producers submit. The more detailed producers' numbers are, the better resource these reports can be. This accuracy carries over to other industry forecasts, such as PCA's.
To get the most from reports and forecasts, producers need to be “realistic antagonists,” presenters emphasized. They should challenge the assumptions that shape economists' conclusions to make these projections more relevant to their companies' needs.
For example, PCA's forecast of one quarter's cement supply might assume an inventory level of 5.5%, while a particular producer's inventory may actually be only 4%. This small change can make a big difference in calculating the inventory overhang and predicting the drag on cement consumption during that quarter.
Reducing forecast risks
While PCA economists attempt to minimize the errors in the numbers they compile—including general U.S. economic figures, USGS data, and construction trends—the results are imperfect. “The process of forecasting is all about reducing risk,” Sullivan said. “Your job is to try to manage the error even further.”
He gave producers practical advice on monitoring macroeconomic and construction indicators themselves. They learned where to find data on economic factors, such as labor market changes and consumer confidence, as well as key construction data.
After considering all of these factors, producers can compare their own industry picture against PCA's projections to decide whether they are on target. Sullivan stressed it is critical for producers to translate all of this into a clear and consistent “story line” to provide management with a more stable environment in which they can make decisions.
Attendees received several PCA publications, including the North American Cement Industry Annual Yearbook. This provides current and historical information for data most relevant to the cement industry, including the economic environment, cement consumption and supply, and industry statistics. The book is also available at PCA's Web site.
For producers who missed it, PCA is offering to take their seminar on the road, upon request. For more, visitwww.cement.org.
For More Information....
If you are looking for more advice from expert economists, plan to attend THE CONCRETE PRODUCER's World of Concrete Economic Summit. This year's summit, sponsored by Allen Villere Partners, takes place at noon, Tuesday, Jan. 22. Look for more information in future issues of TCP. Registration will be available soon through www.worldofconcrete.com.