Although cement consumption and overall U.S. construction activity increased significantly more than expected in 2012, these gains would be immediately erased in 2013 if the fiscal cliff is not resolved in a timely manner.
A forecast from the Portland Cement Association (PCA) expects a 7.5 percent jump in cement consumption in 2012, up 50 basis points from its summer forecast. However, the instability of the political landscape makes projecting 2013 consumption more challenging.
The “fiscal cliff” came about from dual economic objectives reflecting the need to inject fiscal stimulus into an inert economy and the need to deal with burgeoning federal debt. Packaged together as the Budget Control Act of 2011, tax increases of $400 billion coupled with $200 billion in federal spending cuts are scheduled to go into effect January 1, 2013.
If Congress resolves the fiscal cliff during its lame duck session in 2012, PCA expects the economy to continue to grow and cement consumption in 2013 to increase 6 percent. Adversely, even if Congress addresses the policies by the first quarter of 2013, this delay will cause significant economic harm and cause a 2.7 drop in cement consumption.
“Because we believe the odds for either outcome are even, we have adopted a forecasting approach that minimizes up and downside risk,” Ed Sullivan, PCA chief economist said. “Our baseline scenario blends the two possible outcomes and projects a 1.8 percent increase in cement consumption in 2013.”
Sullivan also reported that the longer Congress delays in addressing the fiscal cliff, the greater the adverse affect on economic growth and construction activity in particular. “If no action is taken by mid-2013, the country could be headed into a severe recession.”
According to the PCA report, cement consumption through September 2012 had increased 10 percent compared to last year, with 16 consecutive months of growth. Sullivan attributes this growth to the return of consumer confidence, a strong housing market, and most importantly, growth in employment.