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When forecasting the economic outlook for the industry, the Portland Cement Association does not expect the relatively robust growth of the past three years to continue.

Oil prices are expected to retreat slowly while inflation is to remain stubbornly high. Interest rates are expected to rise at a faster pace than previously thought — both short and long term. Job growth will moderate under the dual pressures of higher oil prices and higher interest rates. Real consumer spending, accounting for more than two out every three dollars of U.S. total economic activity, will grow at a sub-3 percent rate during 2007 and beyond. These combined factors lead PCA to expect real GDP will grow 3.1 percent in 2006 followed by a sub-3 percent growth pace for 2007 and beyond.

Construction outlook

Overall construction spending is expected to record a 1 to 1.5 percent gain in 2006, followed by a 2 percent gain in 2007 and modest growth in 2008 and beyond. The construction outlook reflects sustained declines in residential construction offset by gains in nonresidential and public sector activity.

Residential Construction: Rising mortgage rates, slow growth in household income, tightening credit conditions and large inventories of unsold homes play critical ingredients in PCA's 2006 projections of a 13 percent decline in single family starts, followed by another 13 percent decline in 2007. Compared to 2005 levels, this represents a 7.1-million-metric-tonne reduction in cement consumption through 2007 — representing a 24 percent decline. These declines are expected to be amplified by an additional 1.4-million-metric-tonne decline in cement consumption targeted at the home improvement/additions sector.

PCA expects 30-year conventional mortgage rates will top 6.9 percent by mid-2007. Up to an additional 50 basis point increase in rates is expected to materialize by the end of 2007. Rising mortgage rates will be overlaid onto large principals due to strong appreciation rates recorded over the past two years. Mortgage payments, now estimated at an average of $1,400 per month for new homes, are expected to rise nearly 15 percent in 2007 — reaching an average of nearly $1,850 per month. New home affordability will erode, particularly in regions which have recorded the strongest home appreciation during the past three years, such as the West and East Coast states.