U.S. construction spending is expected to decline modestly during 2003, says the Portland Cement Association's preliminary Spring Forecast for the U.S. construction and cement industry. Even though the outlook suggests a third consecutive year of decline in spending, the projections will still rank as the fourth best year in construction's history.

PCA is mildly pessimistic regarding the outlook for 2003, due mostly to the overall U.S. economic growth potential. It is true, says PCA Chief Economist Edward Sullivan, that the underlying fundamentals for sustained economic growth are in place and gradually gaining strength. Unfortunately, stronger economic growth is not expected to materialize until the second half of 2003. On the shoulders of the broad recovery, Sullivan adds, stronger growth in U.S. construction activity will materialize, prevailing throughout 2004 and beyond.

Sullivan anticipates residential construction will remain strong during 2003, although not at 2002 levels. Nonresidential construction will remain weak during 2003, with a relatively slow ramp-up in economic growth during the year.

The near-term outlook for public construction contains significant downside risk, according to Sullivan, reflecting recognition of severe budget constraints now faced by most state governments. There is little doubt that the severity of this budget crisis will result in tax increases, spending cuts, and the postponement of some planned construction projects. However, since significant lags exist between appropriations for state construction projects and actual construction activity, public building projects that materialize during 2003 received funding in 2001 — a time when most state budgets were still in relatively good shape. The long lag could be enough to weather what could be a difficult 2003, says Sullivan.