Slower than anticipated improvements in the U.S. labor markets — and the resulting negative impact this will have on nonresidential building — are at the heart of adjustments in Skokie, Ill.-based Portland Cement Association's economic forecast on cement and construction. While the previous forecast scenario from PCA Economic Research remains largely unchanged, adjustments in the current forecast reflect changes in the timing of the turning point.

Labor markets have not yet succumbed to the logic contained in the PCA's otherwise well-performing Spring forecast. As a result, PCA has pushed back its anticipated turning point for labor markets until October and reduced the magnitude of job creation following thereafter. “The labor market will sit near the no-job-loss, no-job-creation saddle point for a period,” states PCA Chief Economist Ed Sullivan. “Despite recent employment data indicating improvements in labor markets and the rate of monthly job losses on an apparent decline, this scenario should play out even if forthcoming employment reports confirm the turning point.”

Among the key forecast assumptions:

• The Federal Reserve will delay increasing interest rates until the second quarter of 2004.

• Single-family housing starts will remain strong through the first quarter of 2004.

• Soft mortgage rate environment will adversely affect apartment demand, keeping vacancies high until the second half of 2004.

• Office building construction activity will not turn around until late 2004/early 2005.

• Overall nonresidential construction spending will be weaker than expected, but strong consumer consumption will prompt an earlier than expected recovery in retail construction spending.

• Amplified financial stress on state governments will continue throughout 2004.

PCA's latest economic forecast adjustment makes it clear that it would be prudent to adopt a more conservative scenario with regard to the medium- and long-term growth path of cement intensities, or the amount of cement used per unit of construction dollar activity. The measure has been on a sustained decline throughout 2003, and PCA has adjusted downward the implied intensities for the entire forecast horizon.

Despite this news, the July edition of PCA's The Monitor confirms the fact that the association's Spring forecast for 2003 cement consumption remains on track. The recovery in investment spending will be a critical factor in achieving 3 percent GDP growth during the second half of 2003, says Sullivan. Capital expenditures are showing signs of strengthening, and business confidence has been extremely robust since the official end of the war with Iraq. But as indicated, slower than anticipated improvements in the U.S. labor markets have had an impact on the expected turning point.

Key statistics from the July U.S. edition of The Monitor include:

• Portland cement consumption rose 1.1 percent in April, with year-to-date consumption down 2.4 percent.

• Blended cement consumption was down 25.6 percent in April and is running 3.2 percent below year-ago levels.

• Masonry cement consumption increased 3.4 percent in April versus last year's level; year-to-date consumption is off just under 1 percent.

• Cement and clinker imports were down 6.9 percent in March and continue to track down at a double-digit pace on a year-to-date basis.