PCA says debt poised to negatively impact on cement consumption

US: Inaction by Congress to raise the federal debt ceiling could result in a second recession, adversely impacting cement consumption, according to a recent report by the Portland Cement Association (PCA).

The report says that inaction on the debt ceiling could cause derailment of the fragile US economic recovery. A federal default would have a severe impact on business, consumer and bank confidence, leading to a rise in interest rates. In addition, forced government austerity spending measures are likely. This could depress highway and other government construction programs at the federal and state level. This possibility could cause a great deal of further pain to the cement industry, because public construction projects account for 50% of total cement consumption in the US.

"In this scenario, cement consumption would record a 5.6% retraction in 2011 followed by a 7.5% drop in 2012," said Ed Sullivan, PCA chief economist. "In fact the debt crisis may already be exerting adverse influence on near-term cement consumption due to suspension of state and local treasury bonds as well as an overall uncertainty that has been injected into the economic landscape."

The PCA estimates that the cyclical downturn caused by the Great Recession has reduced federal revenues by USD1.9tn and raised income security payments like unemployment insurance by USD600bn. Aside from revenue and tax assessments, part of the increase in debt has been recorded due to necessary countercyclical spending such as the stimulus package. Defence spending in the Middle East has also contributed to the recent large deficits. The report says that finally (and perhaps most worryingly) deficits have come from increases in entitlement spending fuelled by demographic changes. The Congressional Budget Office expects entitlement spending on social security and the Medicare and Medicaid schemes will rise from USD1.5tn in 2010 to USD2.6tn in 2020.

The debt accumulation during the past four years actually exceeds the total debt accumulated since the country's inception.