Construction Industry and Economic Outlook 20072008

1
Construction Industry and Economic Outlook
2007-2008

• Jeffry H. Taylor
• Chief Economist
• ABC National
• ABCC and CFMA Triangle Luncheon
• July 11, 2007

2
Macroeconomic trends and forecast

• GDP GROWTH gradual increase, but no return to
  trend (3) until second half of 2008
• Consumer spending, and to a lesser extent
  business investment, key to the economic recovery
• Housing market will not add to GDP until 2008
• Global economy is slowing, but remains healthy

3
Macroeconomic trends and forecast

• INFLATION Inflation is on the rise, but core
  inflation has likely peaked
• Food, energy, medical care, and rents driving
  inflation higher this year
• Moderate growth should allow for decline in the
  CPI in 2008
• Energy costs and a tight labor market will
  continue to pressure prices

4
Macroeconomic trends and forecast

• INTEREST RATES The inversion of the yield curve
  is unraveling slowly
• A flat yield curve will give way to a normalized
  yield curve in 2008
• FOMC not likely to alter the Fed Funds rate
  however an increase is possible
• 2007 3-mt-5.2 2-yt-5.1 10-yt-5.3
• 2008 3-mt-4.7 2-yt-5.0 10-yt-5.1

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North Carolina Economy
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North Carolina Economy
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North Carolina Economy
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North Carolina Economy
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South Carolina Economy
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South Carolina Economy
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South Carolina Economy
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South Carolina Economy
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Todays Construction Industry
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Todays Construction Industry
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Recent Construction Trends

• May construction spending 1.18 trillion up from
  1.17 trillion in April, but down 2.8 percent
  from May 2006
• Non-residential construction spending in May
  increased to 620.6 billion from 605.7 billion
  in April and is up 15.4 percent from May 2006
• Residential construction spending has declined
  17.3 percent over the past year to 556 billion

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Recent Construction Trends 2

• All segments of non-residential construction
  spending rose in May and only two segments
  declined over the past 12 months (religious and
  conservation)
• Commercial, office, educational, and
  highway/street spending very strong
• Health care, lodging and power spending remains
  robust

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Construction Spending Forecast2007

• Total spending in 2007 is expected to decline by
  1 percent to 1.18 trillion
• Non-residential buildings and non-residential
  structures spending are forecast to increase by 9
  percent and 7 percent respectively this year
• Residential construction spending is projected to
  decline by 10 percent in 2007

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Construction Spending Forecast2008

• Total spending in 2008 is expected to rise by 6
  percent to 1.26 trillion
• Non-residential buildings and non-residential
  structures spending are forecast to increase by 8
  percent and 7 percent respectively in 2008
• Residential construction spending is projected to
  increase by 5 percent next year

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Labor Issues

• Shortage of craft workers and project management
  demographics and the evolution of the economy
• Need to improve the image of the construction
  industry education and outreach
• Retention of employees pay, benefits, training,
  workweek flexibility
• Embrace diversity both workers and supervisors

20
Materials Costs

• Global supply and demand trends are not favorable
  over the near-term expect significant volatility
• Construction segment PPI trends (May) overall
  0.9/4.1 y/y construction inputs 0.8/3.3 y/y
  highway and street 1.9/5.5 y/y other heavy
  construction 1.5/4.9 y/y multi-family
  residential 0.4/3.2 y/y commercial building
  0.8/3.2 y/y new schools 0/13.3 new
  warehouses 0/6 new office 0/7.3

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Materials Costs2

• Crude goods (16 YTD) and energy inputs placing
  significant upward pressure not expected to
  abate over the near-term
• Fuel prices off highs but crude oil up 16 YTD
  and 2 diesel up 25 YTD
• Recent commodity PPI increases over the past year
  (May) asphalt 12 iron and steel scrap 29.5
  copper scrap 32 steel mill products 17
  concrete products 4.6 construction sand/gravel
  9.1

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Immigration Reform

• Immigrants are a growing and substantial segment
  of the labor force currently 23 million and
  accounted for 50 percent of the labor force
  growth over the past decade
• Immigration, legal and illegal, have allowed for
  the growth in construction employment
• Need to deal with the illegal immigrants
  presently in the workforce (12 million)
• Visa approvals should be more job-related and
  less family-related
• Critical for economic growth tax revenues,
  future homeowners, skilled labor base (H1 Visa
  program expansion)

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Productivity

• Due to increased competition, productivity
  increases are critical
• Worry about what is under your influence and
  think like a business person, not just as a
  contractor
• Recruit and maintain skilled supervisors and
  workers, apply technology, innovate, and work
  hard
• Develop metrics (measures) to determine
  productivity

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Construction Union Membership Trends

• Since 2000, the number of construction industry
  union members remained at approximately 1 million
• However, union membership as a percent of the
  total construction workforce declined
  significantly over the period
• 2000 18.3 percent
• 2006 13.0 percent

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REGION 4

• Union membership decreased to 48,400 in 2006 from
  75,600 in 2000
• Tennessees union membership declined by 85
  percent and Georgia declined by 36 percent
• Union membership decreased in all states except
  for Florida and South Carolina
• Union membership in Florida represented 45
  percent of the regions total union membership in
  2006

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Globalization of Construction

• Globalization is where goods, services, workers,
  technology, ideas, and resources migrate to where
  they can work most efficiently and profitably
• Pay more attention to global economic and
  political trends
• Consider recruiting foreign nationals, working
  with foreign companies, and forging cross-border
  supply chains

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Construction Industry and Economic Outlook
2007-2008

• Jeffry H. Taylor
• Chief Economist
• ABC National
• ABCC and CFMA Triangle Luncheon
• July 11, 2007