Construction

1
Construction Materials Outlook

• AGC Nebraska Building Chapter
• October 30, 2008
• Ken Simonson, Chief Economist
• AGC of America
• simonsonk_at_agc.org

2
Current economic influences

• Credit market freeze affecting private, state and
  local borrowers
• Weak economic outlook, falling state spending
• No job growth, rising unemployment
• Wages, personal income lt CPI change

Source Author, from BEA (GDP, personal income),
BLS (CPI, employment, unemployment)
3
The shifting construction market(total change
August 2007 August 2008 -6)
Source Census (construction spending)
4
Single-family (SF) vs. multifamily (MF)

• August construction spending (value put in
  place)
• SF -4.2 vs. July, -41 vs. 8/07
• MF -4.2 vs. July, -4.3 vs. 8/07
• Improvements 9.8 vs. July, -8.4 vs. 8/07
• September building permits
• SF -3.8 vs. August, -38.9 vs. 9/07
• MF -16.4 vs. August, -37.6 vs. 9/07
• September housing starts
• SF -12.0 vs. August, -41.9 vs. 9/07
• MF 7.5 vs. August, 9.6 vs. 9/07

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Source Census
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Housing outlook

• SF No relief yet for decline in permits, starts
  or spending, but sales could pick up by early 09
• Starts wont improve until mid 09 at best
• MF Rental construction cushioned the fall in
  condo starts but now many owners are trying to
  rent out houses and condos
• Foreclosures will add to inventories, drag down
  both sales and rentals

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Source Author
6
Nonres 07 totals, change 08 YTD change
Source Census
7
Leading segments in 2008 - 2009
Source Author
8
Weaker segments in 2008 - 2009
Source Author
9
Spending outlook for 2008 - 2009
Source Census Author
10
Materials and components
Source BLS (CPI, PPI)
11
Change in Producer Prices for Construction vs.
Consumer Prices, 2003 - 2008 (December 2003 100)
Sep. 2008
Source BLS (CPI, PPI)
12
Change in Producer Prices for Construction
Segments, 2003 - 2008 (December 2003 100)
Sep. 2008
Source BLS (CPI, PPI)
13
Change in Producer Prices for Major Construction
Inputs, 2003 - 2008 (December 2003 100)
Sep. 2008
Source BLS (CPI, PPI)
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Producer Price Indexes, 2007 vs. 2008
No. 2 Diesel FuelChange from 9/07-9/08 39
Steel Mill ProductsChange from 9/07-9/08 38
Asphalt Paving Mixtures BlocksChange from
9/07-9/08 51
14
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Producer Price Indexes, 2007 vs. 2008
Gypsum ProductsChange from 9/07-9/08 1.7
Lumber and PlywoodChange from 9/07-9/08 -3.4
Concrete ProductsChange from 9/07-9/08 4.3
Copper Brass Mill ShapesChange from 9/07-9/08
-2.9
15
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Outlook for materials in 09 compared to 08

• Lower average prices diesel, asphalt, steel
• Possible increases concrete, gypsum, copper,
  wood products
• Year-over-year PPI change 2-5

Source Authors forecasts
17
Outlook for materials (beyond 2009)

• Industry depends on specific materials that
• are in demand worldwide
• have erratic supply growth
• are heavy, bulky or hard to transport
• Construction requires physical delivery
• Thus, industry is subject to price spurts,
  transport bottlenecks, fuel price swings
• Expect 6-8 PPI increases, higher spikes

Source Authors forecast
18
Construction jobs fall, but wages rise
Employment
Average Hourly Earnings
Source BLS
19
Change in construction employment, Aug. 07 Aug.
08
BLS Employment Change
Adjusted Employment Change
19
Source Author (from BLS, Census data)
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Implications for 2008-09 wages

• Nonres employment actually includes another
  523,000 res specialty trades
• Thus, res change 8/07-8/08 was -28, not -11
  nonres change was 11, not -2
• Biggest demand in 08 will be for crane
  operators, other scarce skills
• Wages in 08 will rise 5 to 6 vs. 4.1 in 07
• Nonres slump in 09 will slow wages to 3-4.5

Source Authors forecasts
21
State construction employment, 9/07
9/08 (U.S. total -6.1)
5 Biggest Losses
5 Biggest Gains
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Source BLS
22
State construction employment, 9/07 9/08
WA
NH
MT
ND
ME
VT
MN
OR
ID
MA
WI
NY
SD
WY
MI
RI
CT
PA
NV
IA
NE
NJ
OH
IL
UT
IN
DE
CO
WV
VA
CA
KS
MO
KY
MD
NC
TN
AZ
DC
OK
NM
AR
SC
AL
GA
MS
LA
AK
AK
TX
FL
HI
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Summary for 2008

• Nonres spending 6 to 11 (led by energy,
  power, communications, hospitals, higher ed
  weaker highway, retail, office, lodging)
• Res -25 to -30 (no turnaround before 09)
• Total construction spending -6 to -10
• Materials costs 6 to 8
• Labor costs 5 to 6

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Summary for 2009

• Nonres spending -3 to -9
• Res -2 to 2 (SF up in 2d half, MF down all
  year)
• Total construction spending -1 to -7
• Materials costs 2 to 5
• Labor costs 3 to 4.5

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AGC economic resources (sign up by email to
simonsonk_at_agc.org)

• The Data DIGest weekly one-page email
• PPI tables emailed monthly
• Construction Inflation Alert
• State-specific emails (timing varies) and fact
  sheets www.agc.org /factsheets
• Webinars/Audioconferences

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Ken SimonsonChief EconomistAssociated General
Contractors of Americasimonsonk_at_agc.org,
703-837-5313www.agc.org