Strong Forecast

No matter what segment of the market you work in, it looks like 2006 is shaping up to be a good year for the construction industry.

“It’s going to be a good market,” said Ed Sullivan, chief economist for the Portland Cement Association. “It’ll probably be a little less strong than I had originally thought because of Hurricane Katrina and its effects, but we’re still looking at a good year.”

Most economists are predicting a big increase in commercial and public construction, with the residential market slowing a bit, but only to near-record levels.

“I’m pretty optimistic about both public and private noncommercial construction in 2006,” said Ken Simonson, chief economist for the Associated General Contractors of America. He specifically cited manufacturing and hospitality as market segments that should see strong growth this year.

And while it’s almost a universal opinion that the residential market will slow, it is likely to only be a slight decrease from expected record levels this year. The National Association of Home Builders is predicting housing starts will drop from an estimated 2.05 million in 2005 to 1.94 million this year and 1.88 million in 2007, said NAHB chief economist David Seiders.

Those figures would be higher than every year but 2004.

The National Association of Realtors is making similar predictions, saying new home sales should drop only slightly in 2006.

“The market will be coming off of a five-year boom and experience a soft landing (this) year,” said David Lereah, NAR’s chief economist.

There are a lot of positive factors for the housing market, he said.

“Baby boomers remain in their peak earning years,” he said. “Their children – the ‘echo boomers’ – are just entering the period of life when people typically buy their first home.”

With mortgage rates expected to rise to above 6.5 percent in 2006, home price gains will probably slow, but widespread decreases in home values are highly unlikely, most industry economists agree.

Concrete shortages

The growing commercial market will continue to put pressure on domestic concrete producers.

“The last couple of years, we’ve seen tight market conditions,” said PCA’s Sullivan. “Thirty states had shortages this summer, and that’s down to about 15 states now as winter slows construction.”

Overall, PCA predicts that there will be a 3.7 percent increase in cement use in 2006, up from a record of more than 120 million metric tonnes in 2005.

There will probably be tight markets again this year, but the intensity is hard to pinpoint, Sullivan said. The easing of residential construction will help in some areas, such as Florida, where 40 percent of cement was going to residential construction.

“The biggest thing you have to do is work with your suppliers,” Sullivan said. “When a shortage hits, you need to be thinking ahead. It’s not just get it the day you need it anymore.”

The continued pressure will mean continued increases in imported cement after a record year for imports in 2005. About 25 percent of the cement used in the United States is now imported, according to the PCA.

“On the positive side, we are seeing an improvement in shipping capacity, which helps the shortage,” Sullivan said.

There could also be more imports coming from Mexico, if negotiations between the Mexican and U.S. governments are successful. There is currently a 55 percent duty on Mexican imports, and the two governments are reportedly in talks to reduce or eliminate that duty.

“The impact will be regional,” Sullivan says. “There are limitations on what can physically be imported and brought to market. The real solution is to increase domestic capacity.”

The effect of hurricanes Katrina and Rita on cement imports was relatively minor, despite the fact that a large percentage of cement was imported through New Orleans. Most of that capacity was able to be redirected to other locations, Sullivan said.