U.S. economy predicted to grow 6.2% this year, if inflation can hold off
By Jenny LescohierJune 15, 2021
U.S. economic recovery post Covid is in full swing, with gross domestic product expected to grow 6.2% this year and another 4.5% in 2022, but concerns over inflation are tempering enthusiasm.
Ed Sullivan, chief economist and senior vice president of market intelligence for the Portland Cement Association (PCA) spoke at World of Concrete in Las Vegas on June 8, stating he is generally optimistic for what the recovery has in store for the construction industry.
An economy in transition
In the spring of 2020, the U.S. GDP experienced its largest single-quarter decline in history. “Even though we have recovered from that with rather robust growth rates for the year, we still saw a decline in GDP of 3.5%,” Sullivan said. “That’s the largest decline in GDP growth since 1946, when we were transitioning from World War II to a peace-time economy.”
Today, the U.S. economy is coming back from an unprecedented crisis, creating jobs at a relatively rapid pace. “Some people are disappointed we only created 500,000 to 600,000 jobs [in May 2021], but in every other time, that would be absolutely stunning job growth,” he stated, predicting it will take until 2023 for employment to reach pre-pandemic levels.
Cement consumption grew 2% in 2020. “To me, that’s remarkable,” Sullivan said. “Residential construction was the main driver,” thanks in part to the Federal Reserve’s reaction to dire economic circumstances by taking interest rates to historic lows.
Consumer confidence post Covid
By the end of September, Sullivan said the U.S. is expected to see the daily death rate from Covid fall to less than 100 (it was 3,500 at its worst).
“In theory, there will be a dramatic surge in consumer confidence. It will take several quarters, but it will be faster than expected as we see consumers become comfortable again,” he said. “We’re expecting 4.5 million jobs to be created this year, and another 3.5 million next year.”
Supply chain disruption and inflation
While the economy is reawakening post Covid, the speed at which it is doing so is catching some systems off guard.
“Some of our supply chain is still partially asleep,” Sullivan said, noting that a lack of workers is creating challenges for some businesses to meet demand for their products and services.
“Some people are slow to come back to the workforce because they’re getting an extra boost in unemployment benefits or because the kids are still at home from school… that has an impact on our supply chain capabilities, and can cause inflation to spike, but it’s transitory.”
The primary concern is that transitory inflation will become structural and bring about high interest rates, which can slow private sector construction.
“Because we went through that huge decline in GDP activity, the threat to our economy was huge. The Covid relief packages were also huge, to diminish the scarring, but they expanded the money supply at a rate unseen before, and that can cause structural inflation,” Sullivan cautioned, adding, “The Federal Reserve is now readjusting slowly. It will cause a tightening of interest rates, but not enough to choke significant economic growth or private construction activity.”
Residential construction boom will continue
Single-family housing starts are poised to see continued growth.
“We’re expecting single-family housing starts to expand again this year,” Sullivan said. “Last year was the first time we had
one million single-family starts in 14 years. We’re going to expand on that, but that growth will start to moderate and then it will turn negative.”
On the heels of single-family starts cooling, Sullivan predicted multi-family housing to grow, due to an “erosion in affordability issues.”
Nonresidential construction ‘scarred’
Private nonresidential construction won’t see a full recovery to pre-pandemic levels until 2023, Sullivan said.
“There was always a trend to work at home, to buy online, and go to school online... but Covid accelerated those trends, and it did so at the expense of building,” he said. “Nonresidential has been scarred and will put a bridle on the growth that we see coming this year.”
The question of infrastructure funding
The future of public construction and cement consumption in the U.S. is dependent upon what happens with President Biden’s proposed American Jobs Plan. It could pass at face value, or there could be no new infrastructure bill. A compromise is also possible.
Considering those potential outcomes, Sullivan presented a weighted average, with 2.2% growth expected in 2021, 1.9% growth in 2022, 2.4% growth in 2023, 2.8% growth in 2024 and 1.8% growth in 2025.
If there is a compromise in Congress, Sullivan said that scenario would add 4 million metric tons to cement consumption by the end of the forecast period, versus 7 metric tons if the bill passes.
No new infrastructure bill would represent growth of just 1% or less.
In any case, there is cause for concern.
“We just spent $5.2 trillion on Covid relief and the national deficit is at $7.2 trillion now,” Sullivan stated. “George Washington to Ronald Reagan... that’s how long it took to generate the first trillion dollars of debt. We’ve done a multiple of that in two years.
“That’s what going to be important as we discuss any infrastructure plan. Higher taxes are a concern,” Sullivan stated.