Construction

1
Construction Materials Outlook

• May 4, 2009
• 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 demand for income-producing properties
• Falling state spending
• No job growth, rising unemployment
• Stimulus (details www.agc.org/stimulus)

3
Economic Stimulus Package

• Total of 787 billion in spending and tax cuts
• 308 billion in appropriated spending
• 269 billion in direct spending (refundable
  portion of tax credits, unemployment benefits,
  Medicaid reimbursement to states, etc.)
• 211 billion in tax cuts

4
Economic Stimulus Package
49 billion
up to 38 billion
30 billion
21 billion
5
Stimulus tax provisions affecting construction

• 1-year delay (to 2012) in 3 withholding on gov.
  contracts
• Increased expensing
• Net operating loss 5 year carryback of NOL for
  small business (
• Qualified school construction bonds
• Build America bonds
• Bonds for recovery zones, tribal areas,
  renewable energy, energy conservation
• Modified renewable energy, conservation credits

6
Stimulus timing, strings

• Timing highways
• States must obligate ½ of their total by June 30
• States must obligate remainder by Feb. 17, 2010
• Timing other construction language varies
• Conditions
• Davis-Bacon
• Buy American
• No E-Verify requirement or broad-based FAR
• No project labor agreement mandate, but

7
The shifting construction market (construction
spending, seasonally adjusted annual rate)
(1)
(3)
(-34)
8
Single-family (SF) vs. multifamily (MF)
9
Housing outlook

• SF No relief yet for decline in permits, starts
  or spending, but sales could pick up by mid-09
• Starts wont improve until late-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

10
Nonres totals, share, 1- 12-month change
10
11
Public construction (seas. adj. annual rate)
12
Spending outlook for 2009
13
Materials and components
14
Change in Producer Prices for Construction vs.
Consumer Prices, 2003 - 2009 (December 2003 100)
Mar. 2009
15
Producer Price Indexes, 2007 - 2009
1-month -0.612-month -1.9
1-month -0.912-month -7.0
Inputs to construction industries
Highway street construction
1-month -0.812-month -5.8
1-month -0.612-month -2.6
Nonresidential buildings
Other heavy construction
16
Producer Price Indexes, 2007 - 2009
1-month -8.912-month -62.5
1-month -0.112-month -14.6
No. 2 Diesel Fuel
Steel Mill Products
1-month -1.912-month 17.4
1-month -0.912-month 3.6
Concrete Products
Asphalt Paving Mixtures Blocks
17
Producer Price Indexes, 2007 - 2009
1-month -0.812-month -37.0
1-month -2.912-month -22.3
Copper Brass Mill Shapes
Aluminum Mill Shapes
1-month 0.012-month 9.0
1-month -2.512-month -9.6
Lumber and Plywood
Gypsum Products
18
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 -4 to 0

19
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 to 8 PPI increases, higher spikes

20
Construction jobs fall, but wages rise
(seasonally adjusted)
20
21
State Construction Employment3/08 to 3/09 (U.S.
-12.5)
WA-12
ID-17
MT-17
ME-10
NH-13
MN -18
ND-3
OR-19
VT-19
WI -13
NY -6
MI -10
SD -5
MA-13
WY -7
CA -18
NV-18
PA -7
IA -5
RI-17
NE -4
UT-18
OH-12
IL -11
IN -13
NJ-11
CO -14
WV -6
CT-22
MO-9
VA- -13
KS -10
KY -15
MD-14
DC-5
AZ-28
NC -19
NM-12
TN-17
OK -1
DE-14
TX -8
AR-1
SC- -11
GA-15
AL -15
MS -8
LA 5
0 to 5
FL -21
-12 to 0
HI-13
-13 to -28
22
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 -4 to 0
• Labor costs 3 to 4

22
23
AGC economic resources (sign up by email to
simonsonk_at_agc.org)

• The Data DIGest weekly one-page email
• PPI tables emailed monthly
• State-specific stimulus estimates and fact
  sheets www.agc.org/stimulus
• Webinars/audioconferences
• Member emails on stimulus jobs, credit market

24
Ken SimonsonChief EconomistAssociated General
Contractors of Americasimonsonk_at_agc.org,
703-837-5313www.agc.org