in March 2020, cement consumption in the United States will decline by two percentage points year-on-year. In the previous edition, before the COVID-19 outbreak, CW projected a growth rate of about 1 in 2020.
If the virus spreads again and economic activity slows down, the weakening of overall demand will not only affect the demand for cement in the short term, but also delay the potential cement supply cycle, thus exacerbating the difficulties that the construction industry, especially the cement industry, may face. This downward trend is expected to continue until 2021, before resuming growth after 2022. After the first quarter of
2020, the new coronavirus spread more and more around the world, forcing the World Health Organization to officially declare it a major epidemic in mid-March, which will lead to an unprecedented global lockdown. Even in the early stages of the spread of COVID-19 in the United States, its possible impact on the U.S. economy, and later on the construction and cement industries, has been revealed. Before COVID-19 became a household word in
2020, the US construction industry was already flashing yellow warning lights. The longest period of peaceful development since World War II portends a gradual slowdown in economic growth. The slowdown in GDP growth will have a significant impact on construction activity and cement demand growth. In the past few years, many factors, including the slowdown of global and U.S. economic growth, the recurrence of trade problems, the decline of consumer confidence, and the gradual slowdown of new employment growth, have negatively affected the outlook for cement consumption.
For now, the idea of a rapid economic recovery has evaporated in the heat of summer, and a grimmer picture is slowly emerging. By many measures, US GDP is likely to return to 2019 levels between late 2021 and early 2022. GDP fell by about 3% in the first quarter, and by 2% in the second quarter to 19.41 $1 trillion. If the virus resurfaces and lockdowns are reimposed, forcing businesses to delay their return to work, it could further delay the recovery until 2023.
Figure 1: US GDP growth quarter-on-quarter (%)
When COVID-19 arrived, the situation in the United States deteriorated so dramatically that it was almost unbelievable. In April, the unemployment rate reached 14.5 months and the figure in June was better than expected. Unemployment rate falls to 11.
Figure 2: US unemployment rate from January 2019 to June 2020 (%)
Not surprisingly, within the United States, not all States show the same trend due to regional particularities. In addition, the Northeast, Southwest, and West, where the first COVID-19 infections and deaths occurred, have seen the largest slowdown in construction activity. Unfortunately, the impact is spreading to other States and territories, including some with dire fiscal conditions, and these States and territories are therefore unable to contain the spread of COVID-19.
According to the Portland Cement Association, 19 States will see a year-over-year decline in state revenue of more than 6% in 2020 compared to 2019; another 18 States will see a decline of less than 6%; while three States could see a decline of less than 4%; and eight States could see a decrease of less than 2%.
Figure 3: Expected Decline in State Revenue in 2020-2022 ( $100 million)
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Overall, state revenues are expected to fall by more than 6% year-on-year in 2020 and by about 5% in 2021 compared with 2019. Instead, state spending is expected to grow, leading to huge deficits. It is estimated that these fiscal deficits will reach $500 billion. These figures have become a drag on economic activity and cast a shadow over the outlook for States, regions and cement consumption. The outlook for cement consumption varies at the state, regional, and national levels,
depending on the metric chosen. In the weeks leading up to the outbreak, there was a lot of talk about a V-shaped recovery; a rapid turnaround after a steep decline that was previously thought to be only theoretical. This discussion has now been replaced by a U-shaped recovery. In the U-shaped scenario, after a sharp decline, the economy is expected to take more time to return to the previous growth cycle. This has not only had a significant impact on a range of economic sectors, including the construction sector, but also, due to regional differences in cement demand, perhaps in the short to medium term there may be sharper fluctuations due to a negative bias. Cement demand patterns vary
from region to region, driven not only by factors such as population, economic growth and infrastructure needs, but also by some of the major market drivers. The major architectural complexes in the United States are in the Mid-Atlantic (tri-state area), South Atlantic (Florida), Southwest Central (Texas), and Pacific (California). All of these areas have been hit hard by the COVID-19 epidemic. Either as the epicenter of the initial outbreak, like New York and California, or as Florida and Texas are being affected.
Regardless of the indicators of recovery, the Mid-Atlantic region is expected to be the worst performing region in the cement industry after the South Atlantic and Pacific regions. Only the south-central region, led by Texas, is expected to return to normal growth next year, provided there is no more stagnation in the economic recovery. And even in Texas, a slowdown in economic activity and a sharp decline in oil prices have sent oil well cement, a key category of specialty cement, plummeting in the update to CW Group's World Oil Well Cement Outlook 2020.
In addition, given the recent surge in COVID-19 cases, it is doubtful that there will be a smooth recovery process, especially as autumn and winter approach, which scientists have announced will be a very challenging period.
Given the uncertainty of the environment, there are a number of factors that could improve or further exacerbate the status quo. One of the most worrying is the financial situation of the States in dealing with the economic, social and political impact of the epidemic. Secondly, the negative impact of the epidemic on personal finances and people's willingness to consume will have a significant impact on construction activity and cement demand.
In addition, while the unemployment rate has risen to its highest level since the Great Depression, the number of available workers in the construction industry is decreasing due to the combined effects of immigration policy and the epidemic. This is likely to lead not only to less construction activity, but also to higher costs, further hindering the recovery of cement demand. As concerns about climate change intensify, stricter emissions regulations are likely to be introduced in the coming years, which will also have a significant financing and cost impact on cement manufacturers and cement production processes in the United States. The negative impact of increased imports goes far beyond local production. If Congress somehow passes the much-anticipated trillion-dollar infrastructure bill, it will have a significant positive impact on improving the construction industry in the medium term.However, with roughly three months to go before the next general election, the stalemate is likely to continue until the next Congress takes office in early January 2021. If those numbers weren't alarming enough, both private and public construction spending fell by 0% in June. Overall private residential spending fell by 1%, thanks to the decline in single-family apartment construction spending. As online shopping and working from home change consumer behavior and work culture, there may be an irreversible impact on demand for physical stores and office space. The impact on demand could be even greater than all of the above. Rarely has
the future been as uncertain as it is now. Still, this doom and gloom is only a temporary phase. There is hope in the United States and around the world that a vaccine for COVID-19 will be developed, and that this will reverse the current situation. If an effective vaccine can be found in the short term, it will provide a huge boost to the economy and all sectors, including the construction industry. All areas will benefit from the growth of consumer spending generated by the renewed increase in consumer confidence.
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