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Fiscal cliff deal might not be the end of the US cement industry’s woes

World Cement,

The House of Representatives passed the so called ‘fiscal cliff’ bill by 257 votes to 167, putting a stop to many of the potential tax increases and spending cuts that, it was feared, would send the US economy into another recession. Indeed, it was expected that were it not resolved, the fiscal cliff would amount to US$536 billion in tax rises and US$109 billion in spending cuts.

As we reported in November, the deal is bound to be good news for the cement industry. With this timely resolution to the fiscal cliff, the higher than expected growth in construction spending seen in 2012 should be set to continue, in line with the Portland Cement Association’s (PCA’s) prediction that cement consumption in 2013 should increase by 6%.

The deal has ensured that tax cuts that date back to George W Bush's presidency for individuals earning less than US$400 000 have been made permanent, as well as the postponement of US$65 billion of automatic spending cuts for two months. Benefits for the long-term unemployed, worth a total of US$26 billion will be available for another year and US$11 billion worth of cuts to Medicare payments have been postponed for a year too.

However, it is the tax increases that were allowed to go ahead that bear more significance for the cement industry. While higher taxes for top earners will not be so keenly felt in the form of overall consumption, the expiry of a payroll tax holiday, which will see an increase of 2% in payroll tax, will be registered across the board. Whereas the top earners will feel their savings hit, it will be the disposable income, and therefore spending power, of the middle classes that will suffer.

There is also still the matter of spending cuts to be resolved. That has just been pushed further down the schedule, with negotiations set to take place in February. Another early PCA prediction suggested that had the issues of the fiscal cliff not been resolved until the end of 1Q13, the delay would cause significant economic harm, with a 2.7% drop in cement consumption being the most likely result. Though an immediate crisis has been averted, spending cuts are yet to be deliberated over, with their ultimate effects, if any, still hard to predict. It could be that between the two PCA predictions, one might establish a more accurate forecast for cement consumption in 2013.

The watchword then, for the US cement industry over the coming months, should be confidence. It is worth noting just how close this vote really was. Though it divided republican representatives, the votes for the deal were far from the majority. The first round of negotiation heralded a happy new year, but with round two due in two months, it is too early to begin celebrations just yet.

Written by Jack Davidson.

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