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Illustrating the recovery to come

By |  July 2, 2020
Photo by Kevin Yanik

According to SC Market Analytics’ David Chereb, several factors will bring aggregate consumption down this year – as well as next year – before the market begins to experience gains in 2022. Photo: P&Q Staff

The economy is expanding again. Jobs are coming back, and major areas of the country are opening.

The path will not be smooth, though, as negative developments on the coronavirus lurch around us like a roller coaster. Our assumption is that the virus will be managed by the spring of 2021 through a vaccine or effective treatments.

What’s ahead

A fourth round of stimulus is likely to be passed (with a not-so-convincing probability of 51 percent). Both the Trump administration and Congress want a stimulus –but for very different reasons. Still, because both sides like to spend money, we think something will pass.

This means billions of new dollars for infrastructure spending from the federal government. This will mainly counter state and local spending, as these entities struggle to balance their budgets.

On net, the total amount spent on infrastructure will be flat to slightly positive for the next two years. After that, funding grows more rapidly as the economy picks up speed.

Breaking down the markets

Photo: Total aggregate consumption. Source: S-C Market Analytics

While aggregate consumption tied to residential and nonbuilding construction is expected to dip in 2020, S-C Market Analytics expects consumption related to nonbuilding construction to be flat. Click to enlarge | Table: S-C Market Analytics

Private construction – residential and nonresidential – will take vastly different paths over the next three years.

Residential will lead all construction segments, as new migration patterns increase demand for housing in warmer areas and all suburban areas. Record-low mortgage rates will support much higher levels of new housing.

The environment is completely different for nonresidential, where a pickup in the Amazon Effect will hurt retail for years to come. The “Zoom Effect” is making an impact, too. With more remote workers, companies don’t need as much office space within cities.

Only warehousing has a good outlook, as growing online shopping continues to increase the demand for more warehousing.

For 2021, the outlook for most states is lower due to declines in nonresidential more than offsetting both residential and nonbuilding gains. The states that are slow to reopen will do worse, as their job and budget outlook is poor.

Most of the states approaching a full opening are lower-cost, higher-growth areas and will lead the nation in economic gains in 2021. The rapid increase in oil prices back above $40 per barrel will help the energy states recover from the sharp 2020 decline.

Final thought

In summary, 2020 and 2021 will be down years for aggregate consumption, and aggregate price increases will be lower than in recent years. 

David Chereb, Ph.D., is with SC Market Analytics (SC-MA), which produces customized market forecasts by major segment of construction, from the county level up. Clients use SC-MA market intelligence reports for business planning and acquisition analyses in aggregate, ready-mix concrete and cement. For more information, visit sc-marketanalytics.com.


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