Portland Cement Association Expects Sub-Prime Crisis to Spill over into Commercial Lending

Portland Cement Association Expects Sub-Prime Crisis to Spill over into Commercial Lending
Published: 19 September 2007

Rapidly deteriorating economic conditions, caused primarily by the sub-prime crisis, have prompted the Portland Cement Association (PCA) to adjust its forecast for 2007 and 2008 cement consumption.
At his presentation at the PCA meetings in Chicago last week, chief economist Ed Sullivan announced that PCA now expects 2007 cement consumption to decline 6.8 percent, followed by a 1.8 percent decline in 2008. The new forecast assumed today’s 50-basis point cut in the federal funds rate as well as anticipated further cuts later this year and in early 2008.

“Right now the sub-prime crisis is viewed as an issue for the residential sector,” said Sullivan. “We believe that it will spill over into commercial lending, hindering nonresidential construction activity. Additionally, high inventory conditions in the residential market will suppress that sector and slow down recovery efforts.”

According to Sullivan, the sub-prime crisis will also bleed into consumer spending. Consumer spending generates more than two out of every three dollars of the U.S. economy. “When the growth rate of consumer spending is impaired, it adversely impacts job growth and overall economic performance.”
Although year to date nonresidential construction spending is 17 percent above 2006 levels, PCA forecasts a decline for 2008. And, as job growth slows, so will public construction spending.