Global Macroeconomic Challenge

ISSUE: A global macroeconomic challenge facing the United States and Wyoming’s heavy highway construction industry in particular is the rising inflation of commodities and inputs for the construction of public transportation systems at a macroeconomic level. For the purposes of this assignment we will focus on the impact of inflation in the cement industry. While inflation has risen, the principal source of Wyoming’s transportation funding has not kept up with inflation. Wyoming policy makers have questioned the source of the rising prices, and, implied that Wyoming contractors are inflating prices to increase profits. The construction industry needs to be aware of the economics of the current and future situation.

CURRENT SITUATION: Global, national, and regional price shocks have hit Wyoming’s construction industry most significantly over the last three years. According to Ken Simonson, Chief Economist for the Associated General Contractors of America (www.agc.org), “since early 2004, the highway construction industry has been battered by a series of price shocks and materials availability problems exceeding any elsewhere in the economy, including other construction segments.”

The building booms in China and India are commonly viewed as the main drivers of the increase in worldwide demand for cement. Demand has outstripped supply and has thus resulted in higher prices for cement. In September, 2004 the impact of the worldwide cement shortage on Wyoming came to the surface when Wyoming essentially “ran out of” cement for a brief period and cement suppliers were forced to put customers on “allocations” in order to manage through the “crisis” until more supplies could be found.

The situation was ultimately alleviated with the shipment of cement from Taiwan which was off-loaded in the Pacific Northwest, shipped by rail to Denver, and trucked to Casper, all at a very high premium. What this situation demonstrated at the Wyoming level was the...