Masonry Magazine January 2005 Page. 60
News
Apprenticeship continued from page 56
primary sponsor in the Senate. We will also be seeking out members with an interest in the bill to write their Congress members and Senators. This legislation is vital to the masonry industry and the education and development of skilled craftsmen.
PCA Report
Mantel of Leadership in Construction Shifting
Oil prices play the wildcard in Fall Economic Forecast.
Higher oil prices will slow overall economic activity, delaying a recovery in non-residential and public construction. In addition, a continuation of low mortgage rates will prolong the boom in residential construction. According to the latest economic forecast from the Portland Cement Association (PCA), consumer spending will be partially compromised, inflation will run stronger, job gains will be smaller, and sentiment in both the consumer and business areas will be more sedated.
"The level and composition of construction spending is shifting," says PCA chief economist Ed Sullivan. "In retrospect, 2004 represented a year of transition for the U.S. construction market. The strengthening economy and an increase in interest rates have set the stage for a recovery in public and nonresidential activity. The wildcard in PCA's forecast is oil prices."
A scenario of higher oil prices and slower economic growth translates into three key considerations to PCA's forecast. First, slower overall economic growth implies a more gradual recovery in capacity utilization and vacancy rates, and generally lowers the expected return on investment for most commercial properties. This consideration puts PCA's estimated gains in nonresidential construction at 9.9% in 2005.
Second, slower overall economic activity implies sluggish growth in employment and therefore a muted improvement in states' tax base. The scars from state fiscal problems will fade less hurriedly than previously anticipated. With delayed state revenue growth, PCA now expects public construction will record a 3.8% increase for 2005.
Finally, mortgage rates will continue to rise, but slowly. PCA considers a mortgage rate of 6.5% the tripping rate the rate that will exert enough pressure on home affordability to result in significant declines in single-family construction activity. The tripping rate is not expected to materialize until the end of the first quarter of 2005, thereby adding legs to the already strong single-family construction run. Overall residential construction should decrease slightly by 0.3%.
For 2005, construction spending is expected to reach an inflation adjusted level of $745 billion or 2.9% growth. Through 2008, nonresidential and public spending are expected to assume the mantel of growth leadership, and residential activity will step down to become the growth laggard (although maintaining historically strong levels). Real GDP is forecast at 3.5% for 2005.
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CIRCLE 315 ON READER SERVICE CARD
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Masonry
January 2005
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