Aggregates consumption continues to make solid gains as shipments catch up with the prior surge in construction contracts. All construction segments added to demand in 2014 and 2015, with residential leading the way. It looks like the favorable conditions will extend into 2016 as consumers, businesses and government all enjoy higher revenues.
Things will get a little tougher after 2016. Slowing world economic growth and the beginning of higher interest rates are the harbingers of the modest drop in demand. Residential will again be a leading indicator of the coming softness.
While the residential news should be good for another 12 months, the news should change by the end of 2016. We don’t have many monetary tools left to boost demand, leaving the job to fiscal and regulatory changes. Since these are difficult to come by and take longer to impact local materials demand, a tougher business climate is expected for the 2017-2019 period.
The good news is that the higher demand will continue for another 12 to 18 months, and the slowdown is moderate because we have no construction bubbles to burst.
Regionally, the energy states are already getting hit with a slowdown. This will continue for a few years because we expect energy prices to remain low. The manufacturing states have been doing well but will now deal with a stronger dollar (hurting exports) and slower consumer durables spending by the end of 2016.
Those areas that have a high concentration of innovators, entrepreneurs and tech businesses will buck the slowdown. These areas – usually cities, not states – do not follow any general economic trend. They move in jumps and plunges depending on how dramatic their new products and services are.
Dr. David Chereb has many years of experience forecasting construction materials, and his web-based forecasting models have captured every major turning point in materials demand for more than 15 years. Chereb received his Ph.D. in economics from the University of Southern California. He can be reached at david.chereb@sc-marketanalytics.com.
