Despite slowdown, reasons for optimism remain for aggregate

By |  January 18, 2019

Business conditions remain strong and the materials outlook remains positive.

Still, things are slowing somewhat and expectations are changing. Double-digit earnings are almost behind us as year-over-year comparisons become more difficult.

There are now reasons to believe interest rates are at or near their near-term peak – something very unusual for this stage of the business cycle. A lot of structural developments have changed the relationship between interest rates and mature economic expansions. Two specific changes come to mind: the growing importance of technology and the international trading system.

Rapid technological growth frequently boosts productivity and lowers cost pressures. The economic impact and the lag between technological change and productivity are very uncertain, so it is hard to gauge the near-term impact. Over time, though, the impact is huge.

This is good for construction, as it means financing costs will remain below historic levels for the next decade. The impact of international trade is also important as more countries hold more U.S. Treasury debt. This provides additional customers to buy U.S. debt, as we remain the relative safe bet. (Yes, total U.S. debt levels will be a huge problem at some point, just not now).

Almost all of the growth in materials consumption will come from nonbuilding construction. Additionally, almost all of the new infrastructure financing will come from state and local sources, with some private partnerships adding a little.

There are too many headwinds for the residential segment, including higher prices, smaller savings for down payments, cultural changes and building cost pressures. These all add up to housing demand peaking this year.

Nonresidential is also flat, as the retail structural changes continue for a few more years while office and warehousing demand flatten out soon.

Regionally, most areas will continue to do well except for high-cost, high-tax states. The movement toward Sun Belt areas will continue as Baby Boomers retire and business costs remain lower in those states.

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

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