Tax cuts should improve aggregate industry’s outlook

By |  January 18, 2018

Because of the new lower taxes and the extra incentives for business expansion and investment, the near-term outlook is much improved. Aggregate demand should go up by 130 million metric tons in 2018 compared to not having a tax cut.

Unfortunately, the passage of the tax bill makes a large infrastructure bill less likely. Worries about increasing the deficit will probably make the size of the infrastructure package smaller. Even so, 2018 and 2019 will now be growth years, with GDP growth approaching 4 percent per year for both years.

One aspect of capitalism that is often underappreciated is the power of incentives. Lower taxes, less regulation and a business-friendly government attitude, are strong pro-growth drivers. They work alongside demographic and innovation changes to raise the potential GDP growth rate of a nation.

Most of the improved growth comes from higher infrastructure spending. Faster GDP growth adds to tax receipts at all levels of government. Since the prior three years have also been good tax receipt years, it will translate into substantial gains in infrastructure spending at all levels of government.

We expect infrastructure demand for aggregate to grow by 18 percent between 2017 and the end of 2019. The nonbuilding component accounts for all the growth in aggregate demand over the next two years.

Private-building aggregate demand will be flat, as it has already grown by substantial amounts over the past four years. Now we are at “full employment,” and wages, inflation and interest rates will all begin to increase modestly.

With housing prices near record levels and mortgage rates about to increase, the pool of qualified buyers will be flat. For nonresidential demand, the low gains in employment and the slowdown in retail investment, along with higher financing costs, will also result in flat demand over the next two years.
Total aggregate demand will increase by 3.8 percent in 2018 and 2.4 percent in 2019.

(Our baseline now assumes a new tax reduction bill will be implemented in January 2018. If it is not passed or it is delayed until 2019, our prior, lower baseline applies.)

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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