Ed Sullivan, who formerly served as The Portland Cement Association’s (PCA) chief economist and senior vice president of market intelligence, said he will continue to publish his popular economic insights on Substack under “The Sullivan Report.“
“I plan to continue to assess the U.S. economy and how that relates to the construction and cement industries,” Sullivan told Cement Optimized. “Given the uncertainty surrounding the economy today, my take on things may be of interest to your readers.”
In his latest report, Sullivan said:
Another year of decline in U.S. cement consumption is expected for 2025.
The U.S. cement market is expected to record its third consecutive year of decline. Without a meaningful decline in mortgage rates, U.S. cement consumption will slide. Volumes could recede below 100 million metric tons – a level not seen since 2019.
The economy’s strength is easing. Typically, this should usher in an easing in monetary policy and lower interest rates. That in turn, should support a recovery in residential construction. Given the suppressed housing starts activity over the past several years, that recovery could be strong enough to lead a recovery in real construction spending and overall U.S. cement consumption.
Unfortunately, this rosy scenario is not going to happen.
U.S. policies regarding trade, tariffs, and immigration have increased the prospects of higher inflation. This will delay any moves by the Federal Reserve to lower rates. In addition, the inflation premiums added to mortgage rates are likely to increase. Altogether, modest, if any, improvement in interest rates will materialize during the first half of 2025. Without a meaningful reduction in interest rates, the U.S. cement market will likely record a third year of decline.
There is more. Heightened inflationary pressures could be combined with a slowdown in U.S. economic growth and gradually weakening labor markets. Economic growth could turn negative. Some may refer to it as a recession. But in the context of rising inflation, this suggests a mild form of “stagflation” whereby the economy experiences the concurrent malady of rising unemployment and inflation.
Initially, the Federal Reserve will likely sit on the sidelines and keep interest rates unchanged. Only after the threat of a more significant decline in economic growth and labor market weakness raises its head, will the Federal Reserve slowly act to lower interest rates.
A lot of time has to pass for all that to happen. Any action to cut rates will not materialize until the second half of 2025 – if then. Initial steps to lower will be modest. This implies a policy of too little, too late to save a recovery for the U.S. cement market during 2025.
