The pandemic and its effects on aggregate demand linger

COVID forever.

It’s beginning to look like COVID will be similar to the common cold and the flu: always around and slightly different from year to year. This means a lot of booster shots and ever-changing mask and shutdown rules.

As we can all imagine, this also means a bumpy path for the economy. Our estimate is that these restrictions will be local and not derail economic growth. Still, growth is likely to be slightly lower because of these changing rules. And that means aggregate demand will be impacted slightly.

The impact of COVID restrictions, however, will be almost too small to measure at the national level.

Another big factor

The next big thing is the new funds for infrastructure and other spending items.

At this time, we don’t know the total amount of new money that will find its way into new aggregate demand. But our outlook suggests most of the impact will occur in 2023 and beyond.

For the next two years, it is residential that will drive demand – and bring nonbuilding with it. Because we are at the end of the decline in nonresidential, all segments are now pulling upward.

Segment analysis

By segment, it is residential construction that is driving aggregate demand upward. Aggregate is not always used directly in new housing, though. Most gains come from new streets and associated elements, but without new housing, there would be little new aggregate demand for this segment.

Nonresidential is finally gaining strength. Most of the new demand is for warehouses, as online shopping continues to gain. Nonbuilding is recovering quickly, as many states and local governments surprisingly have extra funds. With new federal support arriving in 2022, this means above-average growth for the nonresidential segment for years to come.

Regionally, the Southern, Mountain and energy states will gain the most. Part of the demand is due to migration patterns, and part is because of better-run state fiscal policies.

Aggregate pricing strength is present in most areas and will be even better in 2022.

David Chereb, Ph.D., is with David Chereb Group (DCG), which produces customized market forecasts by major segment of construction, from the county level up. Clients use DCG market intelligence reports for business planning and acquisition analyses in aggregate, ready-mixed concrete and cement. Visit davidcherebgroup.com for more information.