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The adverse outlook facing affordability and new home sales is magnified by new home inventory conditions. The recent softening in home sales has resulted in a dramatic increase in new home inventories — which are now at record levels. Measured by average months on the market, inventories have risen from 4.1 months a year ago to 6.8 months currently — requiring a 150,000-unit inventory correction. PCA assumes a 100,000-unit correction in 2007 followed by an additional 50,000-unit correction in 2008.

Nonresidential Construction: Slower economic growth translates directly into slower growth for nonresidential construction activity in 2006 and 2007. The slower pace of economic growth implies slower improvement in nonresidential vacancy rates and slower gains in leasing rates. While the outlook remains positive, the expected returns on nonresidential investments are less robust and suggest a more moderate pace of recovery for nonresidential construction. Compared to 2005 levels, nonresidential cement consumption is expected to grow 12 percent in 2006, 8 percent in 2007 and 6 percent in 2008. By 2008, these gains represent a 4.5-million-metric-tonne gain compared to 2005 levels.

Public Construction: On the public sector side, improvement in state fiscal conditions remains a cornerstone of the current forecast. Keep in mind, 93 percent of public sector construction is performed at the state level — not the federal level. Slower job creation implies slower growth in state revenues. Severe fiscal distress is still fresh in the minds of many state budget officers. It is likely this sensitivity to fiscal distress and the growth slowdown in revenue collections will translate into a cautious approach toward new public sector construction projects. In addition, rising construction costs will reduce the ability of states to undertake the number of planned public projects. Indeed, many DOTs are already readjusting planned paving schedules. Reflecting these concerns, PCA expects public highway cement consumption will fall off its strong 2006 pace to an average 3.8 percent growth in 2007 and 2008. By 2008, public sector gains reflect a 7.7-million-metric-tonne increase over 2005 levels.

Cement consumption

Portland cement consumption is expected to reach 124 million-metric-tonnes during 2006 — reflecting a 2.8-million-tonne gain, or 0.6 percent growth, over 2005's record year. PCA expects the market will record a modest 0.3 percent growth in 2007, followed by more robust trends returning in 2008 when cement consumption is projected to increase by 2.7 percent.

The flattening of the market is the combined result of the decline in the housing industry and softer overall economic conditions. In recent years, the U.S. and cement industries have experienced unprecedented growth. However, construction activity is starting to soften and this will create an adverse impact on cement consumption.