MDM 2012 Economic Forecast

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1 Download handouts (PDF) : or info@mdm.com MDM 2012 Economic Forecast December 15, 2011 produced by event sponsor info@mdm.com

2 Ranga Bodla Director, Industry Marketing NetSuite 2012 Economic Forecast Speakers Jeremy Leonard Economist Manufacturers Alliance/MAPI Ken Simonson Chief Economist Associated General Contractors of America Tom Gale Publisher Modern Distribution Management

3 2012 Economic Forecast 90-minute Agenda Industry Snapshot Gale Industry Survey Results Bodla Industrial Markets Outlook Leonard Construction Markets Outlook Simonson Q&A time ~ minutes Download PDF slides & handouts:

4 Available at

5 2010 Wholesale Distribution Industry Overview Measure Value % Change vs. Previous Year Period Industry Revenues ($B), 2010:Q4 $1, % Oct 2010-Dec 2010 Industry Revenues ($B), 2010 $4, % Jul 2010-Dec 2010 Industry Revenues ($B), 2011 Forecast Growth 8.4% Jan 2011-Dec 2011 Industry Inventories ($B), Non-LIFO method $ % Dec 2010 Inventory-to-Sales Ratio, 3-Month Moving Average % Oct 2010-Dec 2010 Total Employment, 2010:Q4 4,682, % Oct 2010-Dec 2010 Average Annual Revenues per Employee $898, % Jul 2010-Dec 2010 Average Weekly Earnings (non-supervisory personnel) $1, % Jan 2010-Dec 2010 Source: 2011 Wholesale Distribution Economic Reports. Available at Modern Distribution Management

6 Summary of 2010 Performance by Sector Actual Revenues Real Revenues* Revenue Gap Major Sector (Largest to Smallest Sector Revenues) (2010) (2010) (Actual - Real) Oil and Gas Products Wholesale Distributors 33.0% -0.8% 33.8% Grocery and Foodservice Wholesale Distributors 10.1% 6.1% 4.0% Pharmaceutical Wholesalers 1.4% -2.5% 3.9% Electrical and Electronics Wholesalers 16.6% 17.4% -0.8% Industrial Distributors 9.5% 8.7% 0.8% Motor Vehicles and Motor Vehicle Parts Wholesale Distributors 19.5% 17.9% 1.6% Other Consumer Products Wholesale Distributors 2.9% -0.5% 3.4% Miscellaneous Durable Goods Wholesale Distributors 19.4% 3.9% 15.6% Agricultural Products Wholesale Distributors 22.1% 11.4% 10.7% Computer Equipment and Software Wholesale Distributors 14.8% 22.0% -7.2% Commercial Equipment and Supplies Wholesale Distributors 0.3% 0.0% 0.3% Apparel and Piece Goods Wholesale Distributors 3.9% 3.3% 0.6% Metal Service Centers 22.2% 2.6% 19.6% Beer, Wine and Liquor Wholesalers 1.5% -0.3% 1.8% Chemicals and Plastics Wholesale Distributors 13.3% 3.2% 10.0% Hardware, Plumbing, and Heating Equipment/Supplies Wholesalers 7.2% 6.1% 1.1% Building Material and Construction Wholesale Distributors 6.7% 2.4% 4.3% Office Product Wholesalers and Paper Merchants 1.2% -3.3% 4.5% Furniture and Home Furnishing Wholesale Distributors 7.3% 7.0% 0.3% Total 12.8% 4.9% 7.9% * Real revenues equal actual revenues adjusted for product inflation using sector-specific price deflators Modern Distribution Management

7 2011 State of Wholesale Distribution Survey Ranga Bodla, Director, Industry Marketing, NetSuite

8 Presenter Ranga Bodla Director NetSuite

2007 Second largest public SaaS company Offices

High Growth 10,000+ Organizations Top 10

Gartner and IDC Grew revenues 25% over past 2

Suite Recognition NetSuite ERP NetSuite for

9 Who is NetSuite? Background Founded 1998 Public, NYSE: N, since 2007 Second largest public SaaS company Offices in 8 countries $190M+ revenue, 1000 employees High Growth 10,000+ Organizations Top 10 highest growth Financial solution according to Gartner and IDC Grew revenues 25% over past 2 years NetSuite runs NetSuite #1 Cloud Business Suite Recognition NetSuite ERP NetSuite for Wholesale Distribution Fastest Growing Top 10 FMS Vendor 9 Top 10 Cloud Companies to Watch

10 The Evolution of A Typical Distribution Business Warehousing MRP WMS Sales Accounting Order Management 10

11 Resulting in Real Business Issues Incomplete Business View Business Complexity & Inefficiency Lack of Timely, Necessary Info Cost of Business Out of Control 11

12 So What Does This Mean? Find fundamentally new ways to cut costs Drive better efficiency by automating business processes Cut overhead, consolidate IT Manage cash flow Drive top line and bottom line improvements NetSuite for Wholesale Distribution

13 2011 State of Wholesale Distribution Survey Annual Survey Engaged in wholesale business or in the business of finished goods distribution Annual revenues of less than $500 million USD 31% Decision Makers, 46% Influencers Over 200 North American Respondents NetSuite for Wholesale Distribution

14 NetSuite for Wholesale Distribution Optimism for Growth in 2012 Is High

15 NetSuite for Wholesale Distribution Distributors Are Focused on Growth

16 NetSuite for Wholesale Distribution Profitability and Revenue Are Key

17 NetSuite for Wholesale Distribution Efficiency is a Key Focus for Distributors

18 NetSuite for Wholesale Distribution New Products and Sales is Key to Revenue Growth

Efficiency and Customer Intimacy Are Key Priorities Which new technologies, if any, do you anticipate exploring in the next 12 months as a way to make your business more productive or efficient

19 Efficiency and Customer Intimacy Are Key Priorities Which new technologies, if any, do you anticipate exploring in the next 12 months as a way to make your business more productive or efficient Ecommerce 46% Cloud Computing or SaaS initiatives 42% Customer Relationship Management (CRM) 41% Mobile for Sales 29% Warehouse Management (WMS) 24% EDI 19% Demand Planning 18% New Finance / accounting software 17% RFID initiative 8% NetSuite for Wholesale Distribution 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

20 NetSuite for Wholesale Distribution Completeness is a Core Requirement

21 NetSuite for Wholesale Distribution Visibility is Critical To Success

22 NetSuite for Wholesale Distribution Distributors are Still Trying to Understand SaaS

23 So What Does This Mean? Find fundamentally new ways to cut costs Drive better efficiency by automating business processes Cut overhead, consolidate IT Manage cash flow Drive top line and bottom line improvements NetSuite for Wholesale Distribution

24 What SaaS or the Cloud Means to You Ready-to-run Faster time-to-live Low start-up cost Pay-as-you-go Automated upgrades Anywhere access Ease of customization NetSuite for Wholesale Distribution

25 21 st Century Wholesale Business Highly Networked, Dynamic Interactions Complete Business View Streamlined, Dynamic Processes Anytime, Anywhere Access Low Costs of Operations NetSuite for Wholesale Distribution 25

26 The Suite Enables the 21 st Century Wholesale Business Customers CEO CFO Shipping Manager Ecommerce SINGLE DATA SOURCE FINANCIALS / ERP CRM+ Sales Rep/ Manager Production Manager Ecommerce Manager NetSuite for Wholesale Distribution Vendors Partners

27 2012 ECONOMIC OUTLOOK MOVING FORWARD IN FRAGILE TIMES MDM WEBINAR DECEMBER 15, 2011 Presented by Jeremy Leonard Economic Consultant

28 Today s Game Plan Overview of MAPI U.S. Economic Outlook o Macro environment o Drilldown to manufacturing industries Structural Cost Pressures on U.S. Manufacturers o Results of recent MAPI research o Effect on international sectoral competitiveness. A Quick Look at Canada o Largest single market for U.S. exporters (20 percent of total exports) o Considerable economic integration in manufacturing Wrapup and Takeaways

29 About MAPI Business Research Organization Located in Arlington, VA. Founded in 1933 as Machinery and Allied Products Institute. o 500-plus member firms of all sizes across the manufacturing spectrum. o Many large distributors are members (Grainger, MSC, Applied Industrial, etc.). Provides Economic Research, Legal and Regulatory Analysis and Executive Peer Learning. o Quarterly U.S. economic forecasts with special focus on manufacturing industries. o Annual economic forecasts for key U.S. trading partners. o Weekly research notes on topics of current relevance. o In-depth studies of issues and challenges facing manufacturers o Council program brings together senior executives with similar corporate responsibilities for frank information exchange.

30 U.S. Economic Outlook: The Context After Summer Fears of Double-Dip, Some Positive Signs o Labor market seemed to stall, housing market deterioration. o More job creation, decline in unemployment rate and acceleration in GDP growth provide reason for some optimism. Uncertainty Overseas Clouds Global Prospects o European sovereign debt crisis. Is the endgame near? o Managing a controlled economic slowdown in China. o Oil price worries and the Arab Spring are behind us. Political Gridlock at Home Clouds Domestic Prospects o Inability to agree on plan to achieve long-term fiscal sustainability. o 2012 Presidential campaign and polarized electorate puts major policy moves on hold.

31 The Big Picture: Double Dip Averted, But Recovery Will Weaken Inflation-Adjusted GDP Growth Quarterly Percent Change at Annual Rate Q Q Q Q Q Q1 GDP Growth 2004 Q Q Q Q Q1 4-Quarter Moving Average 2009 Q Q Q Q1 (F) = Recession F = Forecast Source(s): Bureau of Economic Analysis and Manufacturers Alliance/MAPI

32 Sources of Economic Growth Diminished in 2011 Contribution of GDP Components to Total GDP Growth Component Percentage Points 2010 Q Q Q Q3 Personal Consumption Gross Private Fixed Investment Nonresidential (Structures) Nonresidential (Equipment and Software) Residential Change In Business Inventories Net Exports Government Consumption and Investment TOTAL GDP GROWTH Source(s): Department of Commerce, Bureau of Economic Analysis Note: Figures may not add to total due to rounding

33 Most Severe Proximate Macroeconomic Problem is Lack of Jobs Private-Sector Employment Trends During Recessions and Recoveries Index Eight Quarters before Trough= Trough Quarters before and after Cyclical Trough Source(s): Bureau of Labor Statistics

34 Household Deleveraging Reverses Course Personal Saving Rate and Consumer Debt Card Debt 7 2,700 (Percent of Disposable Income) ,600 2,500 2,400 2,300 2,200 2,100 (Billions of Dollars) 0 2, Q Q Q Q Q Q Q Q Q Q Q Q Q1 Personal Saving Rate (Left Scale) Non-Mortgage Consumer Debt (Right Scale) Source(s): Bureau of Economic Analysis and Federal Reserve Board

35 Stronger Manufacturing Recovery Is Also Losing Steam Industrial Production In Manufacturing Industries 15 Percent Change at Annual Rate Q Q Q Q Q Q Q1 Industrial Production 2005 Q Q Q Q1 4-Quarter Moving Average 2009 Q Q Q Q1 (F) = Recession F = Forecast Source(s): Federal Reserve Board and MAPI

36 Export Growth During Recovery Dominated By Durable Goods U.S. Exports By Type of Product, 2009 Q2 to 2011 Q Percent Change Automotive vehicles, engines, and parts Consumer Durables Capital goods, except automotive Industrial supplies and materials Services Foods, feeds, and beverages Consumer Nondurables Source(s): U.S. Bureau of Economic Analysis

37 Durable-Goods Export-Intensive Industries Leading the Charge Production Growth Forecast for Selected Manufacturing Industries Industry % Change Industry % Change Food Textile Products Apparel Paper Printing Petroleum and Coal Chemicals Rubber and Plastic Miscellaneous Mfg Nonmetallic Minerals Primary Metals Fabricated Metals Machinery Computers and Electronics Electrical Equipment Transportation Equipment Wood Furniture Source(s): MAPI November 2011 Quarterly Economic Forecast

38 Structural Costs Facing U.S. Manufacturers Even With More Robust Recovery, Strength of U.S. Manufacturing is Not Guaranteed o Structural costs are more burdensome than in our major trading partners (Canada, Mexico, China, Japan, UK, Germany, France, S. Korea, Taiwan). o Strong productivity growth has kept sector afloat, but government needs to ensure manufacturing-friendly environment. Comparative Information on 5 Structural Cost Classes for the U.S. and Its 9 Largest Trading Partners o Corporate tax rates o Employee benefits o Torts o Energy (fuel oil, natural gas, electricity) o Pollution abatement Consistent Methodology Allows Comparisons Over Time o 4 studies done since 2003; 2011 results are online at

39 U.S. Structural Cost Burden Up From 2008, Lower Than Prior Years Total Structural Cost Burden for U.S. Manufacturers 35 Percent difference from 9 largest trading partners Source(s): MAPI Cost Studies

40 Structural Costs Erase U.S. Manufacturing Advantage Components of Aggregate Manufacturing Costs Dollars $40 $35 $30 $25 $20 $15 Pollution Abatement Energy Torts Employee Benefits Corporate Taxes Raw Cost Index $10 $5 $- -$5 United States 9 Largest Trading Partners (Trade- Weighted Average) Source(s): MAPI Cost Study 2011

41 Structural Costs: Behind the Numbers Corporate Tax and Employee Benefits Are The Elephants In The Room o Together they account for 85 percent of the total foreign structural cost advantage relative to the U.S. On Tax Front, U.S. Falling Behind By Standing Still o Combined Federal-state rate of 40 percent unchanged since first cost study; all other countries have reduced rates o Increase in gap since 2008 due to rate reductions in Canada (36 to 31), Germany (38.4 to 29.4) and Taiwan (25 to 17). Out-of-Control Employer Health Care Costs Contrast With Other Countries o Other countries have held the line on benefits share of manufacturing compensation. o In U.S., employers costs of health insurance rose from 8.2 percent in 2003 to 9.7 percent today.

42 A Quick Look at Canada America s Largest Export Market on More Solid Economic Ground o No housing meltdown; minimal damage from 2008 global financial crisis. o Only G7 country to recoup output and employment losses in recession. o Strong demand for natural resources has buoyed domestic economy; high dollar has stimulated import demand (particularly capital equipment). Beyond the Border Initiative o If successful, important component of goal to double exports within 5 years. o Infrastructure investment and single-window electronic paperwork verification will go a long way in smoothing cross-border supply chains Outlook o Topping out of commodity prices stymies growth in domestic demand. o Strong Canadian dollar combined with poor productivity growth spells trouble for the Canadian manufacturing sector.

43 Table 6: Selected Economic Forecasts for North America, 2012 Indicator Percent Change United States Canada GDP Consumer Spending Nonresidential Investment Residential Investment Exports Imports Industrial Production Pretax Corporate Profits Personal Disposable Income Source(s): MAPI, BMO Financial Group,TD Bank Financial Group and Bank of Nova Scotia Note: Corporate profits and personal disposable income not adjusted for inflation F= Forecast

44 Takeaways U.S. Economy Sputtering, But Not At Risk of Recession o Forecast 2.1 percent GDP growth for 2012 is downgraded from the spring, but labor market may be turning a corner o Policy gridlock does not help: key is do no harm. o Downside risk: deeper-than-expected recession in Europe drags U.S. down with it. Structural Costs Are Impediment to Manufacturing Competitiveness o Corporate tax rates and health care costs are major culprits. o Manufacturers doing their part, time for policy makers to step up. Canada Matters o Must be a key part of goal to double U.S. exports in 5 years. o Beyond the Border initiative should improve cross-border integration of supply chains.

Discussion Jeremy Leonard Economic Consultant jleonard@mapi.

45 Discussion Jeremy Leonard Economic Consultant Cost Study available at:

46 Construction & Materials Outlook MDM Webinar December 15, 2011 Ken Simonson, Chief Economist AGC of America

47 Associated General Contractors of America The leading national construction trade association 95 chapters coast to coast; HQ in Arlington, VA All types of construction except single-family 33,000 members: - 7,500 of America s leading general contractors - over 12,500 specialty-contracting firms - 13,000 service providers and suppliers Source: AGC 47

48 Current economy and construction outlook GDP, personal income, jobs: weak gains should improve Continuing problems for office, retail Power, mfg., warehouse/distribution, hospitals will grow Apartments should boom; single-family still a mystery Federal, state, local cuts will continue Materials costs not extreme but will outpace CPI Source: AGC 48

49 Federal funding sources and outlook Stimulus, base realignment, Gulf Coast hurricane work: all ending or tapering off Highway, transit funding OK until early 2012, then?? Other spending Debt ceiling agreement implies more spending cuts but no disruption of interest rates or credit availability Source: AGC 49

50 Construction spending: trend, latest level, 12-mo. change Seasonally adjusted annual rate (SAAR), March 2006-October 2011 $1,400 $700 $1,200 $600 (Billion $, SAAR) $1,000 $800 $600 $400 (Billion $, SAAR) $500 $400 $300 $200 $200 $100 $ $ Total construction Public: $280 billion, -9% October 2011: $799 billion October 2010-October 2011: 0% Private nonres: $280 billion, 8% Private residential: $239 billion, 2% Source: Census Bureau construction spending reports 50

51 Single- vs. multi-family, , seasonally adjusted annual rate (SAAR) $48 Multi-family construction spending $240 Single-family & improvements spending Billion $ Thousands $36 $24 $ Latest 1-mo. change: -1%, 12-mo.: 7% Multi-family permits & starts Permits (1-mo 24%, 12-mo 48%) Starts (1-mo -8%, 12-mo 89%) Billion $ Thousands $180 $120 $ SF(1-mo 1%, 12-mo 1%), Imp(1-mo 7%, 12-mo 2%) Single-family permits & starts Permits (1-mo 5%, 12-mo 7%) Starts (1-mo 4%, 12-mo -1%) Source: Census Bureau construction spending, housing starts reports 51

52 Housing outlook SF: starts, permits should rise gradually by late 11 MF: Upturn has begun, should accelerate in 12 - Rental demand should rise as more people get jobs or move to military base realignment sites - Condo market continues to have large overhang - Government-subsidized market likely to worsen Source: Author 52

53 Nonres totals (billion $, SAAR), share & 12-month change 10/11 Total Share 10/10-10/11 Nonresidential (priv.+federal+state/local) $551 billion 100 % - 1 Power (incl. oil & gas struc., pipelines) Educational Highway and street Commercial (retail, wholesale, farm) Health care Manufacturing (incl. data centers) Office Transportation Sewage and waste disposal Communication Amusement and recreation Other (water, public safety; lodging; conservation; religious): 8% of total, - 13 Source: Census Bureau construction spending report 53

54 Construction spending: public works (billion $, SAAR) $90 Highways (99.9% public) $27 Sewage/waste (98% public) $80 $24 $70 $21 $60 $ Latest 1-mo. change: -0.4%, 12-mo.: -8% Latest 1-mo. change: -0.4%, 12-mo.: -16% $36 Public transportation facilities $18 Water supply (95% public) $32 $16 $28 $14 $24 $ Latest 1-mo. change: -2.6%, 12-mo.: -14% Latest 1-mo. change: -1.7%, 12-mo.: -10% Source: Census Bureau construction spending reports 54

55 Construction spending: institutional (private + state/local) $40 Hospitals (82% private) $40 Higher education (26% private) $35 $35 $30 $30 $ Latest 1-mo. change: -4.4%, 12-mo.: -5% $ Latest 1-mo. change: -6.3%, 12-mo.: -1% $64 PreK-12 education (93% state/local) $15 Public safety (98% public) $56 $13 $48 $11 $40 $ Latest 1-mo. change: 2.0%, 12-mo.: 7.4% Latest 1-mo. change: -1.9%, 12-mo.: -10% Source: Census Bureau construction spending reports 55

56 Construction spending: industrial, heavy (billion $, SAAR) $132 Power (88% private) $66 Manufacturing (98% private) $108 $54 $84 $42 $60 $ Latest 1-mo. change: -5.1%, 12-mo.: 13% Latest 1-mo. change: -1.6%, 12-mo.: 13% $33 Communication (99% private) $33 Amusement & recreation (46% private) $27 $27 $21 $21 $15 $ Latest 1-mo. change: -4.0%, 12-mo.: -4% Latest 1-mo. change: -2.6%, 12-mo.: -8% Source: Census Bureau construction spending reports 56

57 Construction spending: developer-financed (billion $, SAAR) $60 Nonautomotive retail $60 Office (private) $44 $44 $28 $28 $12 $ Latest 1-mo. change: 3.4%, 12-mo.: 14% Latest 1-mo. change: 3.0%, 12-mo.: 1% Warehouses $20 $15 $10 $5 $ Lodging (private) $40 $30 $20 $10 $ Latest 1-mo. change: -9.5%, 12-mo.: 22% Latest 1-mo. change: -2.8%, 12-mo.: -18% Source: Census Bureau construction spending reports 57

58 Economic impact of nonresidential construction Jobs: 28,500 per $1 billion 1/3 direct, onsite construction 1/6 indirect (quarries, mfg., services) 1/2 induced by spending from higher earnings of construction, indirect workers and owners GDP: $3.4 billion Personal earnings: $1.1 billion Source: Prof. Stephen Fuller, George Mason University 58

59 Construction employment/unemployment, 2008-October 2011 Millions Payroll employment, Jan Nov % % % 5.5 5% 5.0 0% Latest 1-mo. change: -0.2%, 12-mo.: 0.3% Unemployment rates, Nov Nov % 18.8% 12.7% 13.1% 9.4% 9.3% 8.2% 6.5% Nov. '08 Nov. '09 Nov. '10 Nov. '11 not seasonally adjusted, construction total 12 month net change, Nov to Nov In thousands ,000 Change in Employment -496,000 Change in Unemployed 5% 4% 3% 2% 1% 0% quarter % change, Q 2011 (3Q10-3Q11: 1.0%) 4-qtr % change Employment cost index for construction Source: Author, based on BLS employment, unemployment and compensation data 59

60 12-mo % change Construction costs and prices Producer price index for construction inputs -10% -20% mo % change 20% 10% 0% 12-mo. % change, 2008-October 2011 (10/10-10/11: 6.9%) PPI for construction inputs, finished buildings 8% 6% 4% 2% 0% 6.9% 4.3% 3.9% 3.4% 3.3% Inputs to New school New ware New indus New office constr industries house bldgs 12-mo. % change, October 2010-October mo % change 12-mo % change Consumer price index (CPI) 20% 10% 0% -10% -20% mo. % change, 2008-October 2011 (10/10-10/11: 3.5%) National Highway Construction Cost Index 20% 10% 0% -10% -20% quarter % change, Q 2011 (2Q10-2Q11: 0%) Source: Author, based on BLS (PPI, CPI); Federal Highway Administration (NHCCI) 60

61 Construction materials costs vs. new offices, highways, CPI 115 PPI for materials 110 March 2009= CPI PPI for offices NHCCI 85 M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O Source: Author, based on Bureau of Labor Statistics (consumer & producer price indexes--monthly), Federal Highway Administration (National Highway Construction Cost Index--quarterly) 61

62 Producer price indexes for key inputs, 1/08-10/11 (January 2008=100) Fuel No. 2 diesel fuel Latest 1-mo. change: -2.2%, 12-mo.: 27% Metal products Copper & brass mill shapes 1-mo: -8.3%, 12-mo: 0% Steel mill products 1-mo: 0.4%, 12-mo: 14% Concrete products 1-mo: 0.2%, 12-mo: 1% Highway materials Asphalt paving mixture & block 1-mo: -0.2%, 12-mo: 8% Lumber & plywood 1-mo: 0.5%, 12-mo: 1% Building materials Gypsum products 1-mo: 3.0%, 12-mo: -1% Source: Author, based on BLS producer price index reports 62

63 Outlook for materials 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 periods of 6 to 9% PPI increases Source: Author 63

64 State construction employment change (U.S.: -0.2%) 10/10 to 10/11 (seasonally adjusted) 3% -3% 4% -5% -1% 4% 2% -10% or worse -5.0% to -9.9% -0.1% to -4.9% 0% to 4.9% -2% 1% -9% -3% 19% -1% 0% 0% 8% 1% 4% -3% 0% -9% 2% 4% 4% 3% -3% -7% -5% 4% -9% -2% -6% 2% 0% -3% 5% or better 3% -1% CT 2% DE 2% MD -3% NH -4% VT 4% MA 3% RI -1% NJ 2% DC 5% -1% HI -1% 3% 2% -3% Source: BLS state and regional employment report 64

65 Summary for 2011 Private nonres spending: +1 to +3% (more power, pipelines, mfg., warehouse; maybe hospitals, higher ed) Public: -8 to -10% (less stimulus, BRAC, hurricane work; continued weak state-local spending) Res: -1 to -2% (SF up a bit, MF accelerating) Total construction spending: -2 to -4% Materials costs: +4% to +9%; +5 to +6% Dec.-Dec. Labor costs: +1.5% or less Source: Author 65

66 Annual projections: Total construction spending: +6% to +10% per year - less housing, retail; declining public spending - new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults Materials costs: +3% to +8% (vs. 2% to 3% for CPI) Labor costs: +2% to + 4% Bid prices: +2% to +5% Source: Author 66

AGC economic resources (email simonsonk@agc.

67 AGC economic resources ( The Data DIGest: weekly 1-page (subscribe at: PPI tables: ed monthly State and metro data, fact sheets Webinars Feedback on activity, credit, costs 67

Construction & Materials Outlook September 4, 2009

Construction & Materials Outlook September 4, Ken Simonson, Chief Economist AGC of America simonsonk@agc.org 2 Current economic influences Muni bond market is working, but not bank lending Rising vacancies