Some economists of late have been adjusting their estimates upward for the country’s economic turnaround to occur sooner rather than later. Not Ed Sullivan. The chief economist for the Skokie, Ill-based Portland Cement Association says he’s still on the “conservative end” of prognosticators, and doesn’t expect the nation’s housing market to show sustained expansion again until 2013. Sullivan presented his group’s estimates at the International Build Show in Orlando, Fla., on Tuesday morning. PCA expects housing starts to remain fairly flat in 2011, at 492,000 units, and increase to 690,000 and 945,000 in the proceeding two years. Those projections are noticeably below the latest estimates from NAHB, for example, which anticipates starts jumping to 860,000 units in 2012.
In an interview with Builder, Sullivan says “headwinds” against stronger growth “are still in play.” For one thing, he is less positive about short-term job growth. PCA expects 1.5 million new jobs to be created this year, which would make only a modest dent in the unemployment rate. Sullivan notes that other economists’ more robust estimates about job growth aren’t sufficiently taking into account the dire financial condition of many states’ budgets, and the probability that municipal worker layoffs could be considerable.
Sullivan also points to the housing industry’s ongoing foreclosure problem as an impediment to recovery. PCA foresees another 1.25 million bank repossessions cascading onto the market in 2011, although it also expects that number to drop precipitously—to around 300,000—in 2012.
There are other hopeful signs for longer-term recovery on the horizon. “Pent-up demand [for housing] will continue to grow,” says Sullivan, which coupled with lower home prices and job growth could produce a much stronger housing market down the road. But Sullivan’s optimism is tempered by the prospect of higher taxes and inflation, and PCA expects interest rates to keep inching up over the next few years. He also fears that baby boomers may not recapture lost wealth caused by declines in existing home values.
The impact of all these factors will be felt by concrete and cement makers, which are currently operating at 62% capacity due to diminishing levels during the recession. The cement industry is also girding for new EPA standards on airborne pollutants that Sullivan says could affect 18 plants and 50 million metric tons of capacity.
Sullivan notes as well that manufacturers would need to spend $3 billion in new equipment and improvements to get their plants into compliance with the new regs. “That’s an awful lot of money for a small industry like ours to come up with.”
John Caulfield is senior editor with BUILDER magazine.
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