Debt Crisis Poised to Impinge on Fragile Recovery

Debt Crisis Poised to Impinge on Fragile Recovery

SKOKIE, IL (July 6, 2011)—Inaction by Congress to raise the federal debt ceiling could result in a second recession, adversely impacting cement consumption, according to a recent report by the Portland Cement Association (PCA).

Inaction on the debt ceiling could cause derailment of the United States' fragile economic recovery. A federal default would have a severe impact on business, consumer and bank confidence, leading to a rise in interest rates. In addition, forced government austerity spending measures are likely. This could depress highway and other government construction programs at the federal and state level. Public construction projects account for 50 percent of total United States cement consumption.

"In this scenario, cement consumption would record a 5.6 percent retraction in 2011, followed by a 7.5 percent drop in 2012," Ed Sullivan, PCA chief economist said. "In fact the debt crisis may already be exerting adverse influence on near-term cement consumption due to suspension of state and local treasury bonds as well as an overall uncertainty that has been injected into the economic landscape."

PCA estimates the cyclical downturn caused by the "Great Recession" reduced federal revenues by $1.9 trillion and raised income security payments like unemployment insurance by $600 billion. Aside from revenue and tax assessments, part of the increase in debt has been recorded due to necessary countercyclical spending such as the stimulus package. Defense spending in the Middle East has also contributed to the recent large deficits. Finally, and perhaps most worrisome, deficits have come from increases in entitlement spending fueled by demographic changes. The Congressional Budget Office expects entitlement spending on social security, Medicare and Medicaid will rise from $1.5 trillion in 2010 to $2.6 trillion in 2020.

Prior to the recession, total accumulated federal debt held by the public totaled $5.0 trillion. Since 2007, this debt has more than doubled, increasing by $5.8 trillion to $10.8 trillion. The debt accumulation during the past four years actually exceeds the total debt accumulated since the country's inception.

The Portland Cement Association, based in Skokie, Ill., represents cement companies in the United States and Canada. It conducts market development, engineering, research, education, and public affairs programs. For additional information, visit www.cement.org.

 

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