Although recent economic news and activity may suggest a technical end to the "Great Recession," the conditions facing the construction industry are likely to remain weak for another year or more, causing a drag on cement consumption, according to the most recent economic forecast from the Portland Cement Association (PCA).
"Given this weak outlook for private sector construction, any near-term turn in overall construction activity will be dictated by public construction," Edward Sullivan, PCA chief economist said. "Unfortunately here state deficits are sterilizing the spending impacts of the federal economic stimulus plan."
According to the Center on Budget and Policy Priorities, 33 states are in severe deficit positions for fiscal 2010, compared to 21 for fiscal 2009. More than 90 percent of all highway and street spending is put-in-place by state and local governments. State fiscal conditions influence discretionary public construction spending and the harsh economic environment facing state and local governments may result in a double-digit decline in discretionary highway/street spending during 2009, Sullivan said.
"Reductions in state spending coupled by the slow release of stimulus funds suggest the cement industry will see very little second half stimulatory impact during 2009. However, more than five million tons of ARRA highway cement consumption should materialize in 2010 and 2011." The cement industry troubles come on the heels of other disconcerting construction cost news. According to Turner Construction Company’s Turner Building Cost Index, which measures non-residential building construction in the United States, costs have decreased 2.07% from the Third Quarter, continuing the decline that began in the First Quarter of this year. Construction costs have decreased by 12.62% since the beginning of the year.
The decrease in construction costs is reflective of decreased private sector development and investment," said Karl F. Almstead, the Turner vice president responsible for the Turner Building Cost Index. "Commodity prices have slightly increased due to global demand, but have not resulted in upward pressure on construction pricing." Approximately 90% of Turner’s business is performed under contract arrangements where Turner provides extensive preconstruction planning services before the contract price is fixed and before construction starts. By providing preconstruction services and utilizing enhanced procurement strategies, Turner effectively manages the market risks associated with cost-related issues.
"The competitive condition in the building construction industry is driving labor to increase productivity, therefore, reducing labor costs," said Almstead.
Turner has prepared the construction cost forecast for more than 80 years. Used widely by the construction industry and Federal and State governments, the building costs and price trends tracked by The Turner Building Cost Index may or may not reflect regional conditions in any given quarter. The Cost Index is determined by several factors considered on a nationwide basis, including labor rates and productivity, material prices and the competitive condition of the marketplace. This index does not necessarily conform to other published indices because others do not generally take all of these factors into account.
[Note: The Portland Cement Association represents cement companies in the United States and Canada, www.cement.org. Turner is the leading general builder in the U.S., ranking first or second in the major segments of the building construction field, www.turnerconstruction.com.]