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 for office, retail, hotel Tax revenue shortfalls deeper spending cuts No job growth, rising unemployment Stimulus (details: www.agc.org/stimulus) Source: Author
3 Economic stimulus package Total : $787 billion in spending increases, tax cuts $308 billion in appropriated spending $267 billion in direct spending (refundable portion of tax credits, unemployment benefits, Medicaid reimbursement to states, etc.) $212 billion in tax cuts Source: Author
4 Construction-related stimulus funding (~$135 bil.) $50 $49 billion $2 airports Billion $ $40 $30 $20 $10 $0 $18 transit/rail $28 Highway up to $35 billion $0 to $9 discretionary $8 housing $6 other federal $6 GSA $7 DOD $30 billion $5 weatherization $6 energy grants $7 wireless/ broadband $11 electric grid Transportation Buildings Energy/ technology $21 billion $5 Corps $7 water/ wastewater $6 nuclear waste Water/ environment Source: Author
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 (<$15 mil. in gross receipts) Qualified school construction bonds Build America bonds Bonds for recovery zones, tribal areas, renewable energy, energy conservation Modified renewable energy, conservation credits Source: Author
6 Stimulus timing, strings Timing 70% of highway money obligated Other agencies: many announcements, few awards Conditions Davis-Bacon Buy American Reporting requirements: jobs, executives pay No E-Verify requirement or broad-based FAR No project labor agreement mandate, but Source: Author
7 Economic impact of nonresidential construction Jobs: 28,500 per $1 billion 1/3 direct, onsite construction 1/6 indirect, supplying industries 1/2 induced by direct, indirect spending GDP: $3.4 billion Personal Earnings: $1.1 billion Source: Prof. Stephen Fuller, George Mason University
8 construction spending by segment, 1- & 12-month change Billion $, seasonally adjusted annual rate (SAAR) July 09: $958 billion, 1-month change: -0.2%, 12-month change: -10% 450 (Billion $, SAAR) 400 350 300 250 7/08 9/08 11/08 1/09 3/09 5/09 7/09 Private Nonresidential ($385b, -1.2%, -8%) Public ($328b, -0.7%, +6%) Private Residential ($246b, +2.3%, -28%) Source: Census Bureau
9 Single-family (SF) vs. multifamily (MF) Construction spending Billion $, SAAR 300 100 0 7/08 1/09 7/09 vs. 6/09 vs. 7/08 SF +7% -45% Improvements 0% +6% MF -3% -37% Building permits vs. 6/09 vs. 7/08 000 s of Units 750 500 250 0 7/08 1/09 7/09 SF MF +6% -20% -26% -71% Housing starts 000 s of Units 750 500 250 0 7/08 1/09 7/09 SF MF vs. 6/09 vs. 7/08 +2% -23% -13% -70%
10 Housing outlook SF: starts, permits now rising steadily; totals should begin to top year-ago figures in late 09 MF: No improvement likely until 11 - Rental demand hurt by job losses among wouldbe renters - Supply swelled by owners who are trying to rent out houses and condos - Banks remain unwilling to lend to developers Source: Author
11 Nonres totals (billion $, SAAR), share, 1- & 12-month change 7/09 Total Share vs. 6/09 vs. 7/08 Nonresidential $704 billion 100% - 1% - 3% Educational 108 15-1 + 2 Power 91 13-2 + 10 Manufacturing 85 12 + 1 + 47 Highway and street 84 12-1 + 3 Office 59 8-1 - 18 Commercial 58 8-2 - 32 Health care 50 7-1 + 2 Transportation 35 5 0 + 2 Sewage and waste disposal 25 4-2 + 1 Lodging 24 3-8 - 35 Amusement and recreation 20 3-1 - 6 Other (communication; water; public safety; relig.; conservation): 9% of total Source: Census Bureau 11
12 Construction spending: industrial, heavy (billion $, SAAR) Power (86% private) 1-month: -1.8%, 12-month 10.0% Mfg. (99% private) 1-month: 1.0%, 12-month: 46.5% 100 90 90 75 80 60 70 45 Communic. (99.9% priv.) 1-month: 0.0%, 12-month: -20.1% Amuse/Rec. (41% priv.) 1-month: -0.6%, 12-month: -5.9% 30 24 25 22 20 20 15 18
13 Construction spending: public works (billion $, SAAR) Highways (99.9% public) 1-month: -1.1%, 12-month: 3.4% Sewage/waste(99% pub.) 1-month: -1.6%, 12-month: 1.0% 90 28 85 26 80 24 75 22 Transp. (73% public) 1-month: -0.4%, 12-month: 1.7% Water (98% public) 1-month: 4.0%, 12-month: -6.4% 36 21 34 18 32 15 30 12
14 Construction spending: developer-financed (billion $, SAAR) Nonautomotive Retail 1-month: -0.6%, 12-month: -37.3% Office (private) 1-month: -1.7%, 12-month: -26.0% 60 70 50 60 40 50 30 40 Warehouses 1-month: -5.0%, 12-month: -42.0% 20 16 12 Lodging (private) 1-month: -8.4%, 12-month: -35.1% 42 36 30 8 24
15 Construction spending: institutional (private + state/local) Higher ed. (29% private) 1-month: 2.2%, 12-month: 7.2% PreK-12 ed. (5% private) 1-month: -3.4%, 12-month: -3.6% 39 70 36 65 33 60 30 55 Hospitals (83% private) 1-month: 0.9%, 12-month: 11.9% 37 34 31 Public safety 1-month: -1.2%, 12-month: 14.8% 15 14 13 28 12
16 Producer price index (PPI) for construction vs. consumer price index, 3-09 150 PPI for inputs to construction industries: 32% Consumer price index: 17% December 3 = 100 140 130 120 110 100 12/03 12/04 12/05 12/06 12/07 12/08 7/09 Source: BLS (CPI, PPI)
17 Producer price indexes, 1/07-7/09 Inputs to constr. industries 1-month: -0.6%, 12-month: -8.6% Highway & street construction 1-month: -1.2%, 12-month: -15.4% 220 250 225 180 160 175 Other heavy construction 1-month: -0.8%, 12-month: -14.0% Nonresidential buildings 1-month: -0.6%, 12-month: -9.0% 250 220 225 180 175 160
18 Producer price indexes, 1/07-7/09 Copper and brass mill shapes 1-month: -9.2%, 12-month: -27.3% Aluminum mill shapes 1-month: 2.3%, 12-month: -22.7% 500 400 175 300 150 125 Gypsum products 1-month: -0.9%, 12-month: 1.3% Lumber and plywood 1-month: 3.8%, 12-month: -9.0% 275 190 250 175 225 160 145
19 Producer price indexes, 1/07-7/09 No. 2 diesel fuel 1-month: -9.0%, 12-month: -59.7% Steel mill products 1-month: 1.7%, 12-month: -38.9% 400 300 275 225 175 100 125 Asphalt paving mixtures & blocks 1-month: -1.7%, 12-month: -10.1% 350 Concrete products 1-month: -0.4%, 12-month: 1.4% 225 300 215 250 205 195
20 Asphalt price indicators, - Liquid asphalt PPI 1-month: 0.3%, 12-month: -31.0% Sand/gravel/crushed stone PPI 1-month: 0.5%, 12-month: 4.5% 420 280 320 260 220 240 120 220 Asphalt paving PPI 1-month: -1.7%, 12-month: -10.1% 350 300 250
21 PPIs for cement and concrete products, 1/07-7/09 Cement 1-month: -0.2%, 12-month: -0.8% Ready-mix 1-month: -0.5%, 12-month: 2.7% 215 230 210 220 205 210 Concrete pipe 1-month: -0.1, 12-month: -1.0% 215 Precast 1-month: 0.0%, 12-month: 1.1% 220 210 185 170 190
22 Outlook for materials in 09 compared to 08 Lower average prices: diesel, copper, steel, aluminum Possible increases: concrete, gypsum Uncertain: asphalt, lumber Year-over-year PPI change: -4% to 0% A limited-time sale Source: Author s forecasts
23 Outlook for materials (beyond 09) 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 Source: Author s forecasts
24 Construction employment falls, but wages rise Employment Average Hourly Earnings Change 8/08-8/09 16% 8% 0% -8% -16% -5.0% -15.1% Total Private Construction Change 8/08-8/09 16% 8% 0% -8% -16% 2.6% 2.9% Total Private Construction Unemployment Rate 1-Mon. % Change in Employment not seas. adj. 25% 20% 15% 10% 5% 0% 9.6% 6.1% Total Private 16.5% 8.2% Construction Aug '08 Aug '09 1-mo % change 0% -1% -2% -3% -4% Nonresidential Residential A S O N D J F M A M J J A
25 CA -19% WA -16% OR -18% ID -14% NV -25% AK -8% UT -17% AZ -28% State Construction Employment 7/08 to 7/09 (U.S. -14.6%) MT -15% HI -13% WY -16% CO -14% NM -16% ND +3% SD -4% NE -4% TX -11% KS -12% OK -4% MN -16% IA -11% MO -11% AR -5% LA +4% WI -11% IL -15% MS 0% MI -20% IN -14% KY -21% TN -20% AL -19% VT -15% PA OH -9% -15% WV -12% VA - -14% NC -18% SC - -12% GA -19% FL -16% NH -18% NY -7% ME -14% NJ -12% MD -15% DE -17% 0 to 4% MA -16% RI -11% CT -22% -1 to -14% -15 to -28% DC -6%
26 Summary for Nonres spending: -3 to -7% (up: power, mfg., BRAC, stimulus; down: developer-, state & local gov-funded) Res: -30 to -40% (SF up in 2d half, MF down all year) Total res + nonres (full year 09 vs. 08): -12 to -18% Materials costs (Dec. 09 vs. Dec. 08): -4% to 0% Labor costs (Dec. 09 vs. Dec. 09): +3% to +4%
27 Summary for 2010 Nonres spending: 0 to -5% (more stimulus put in place, maybe gains in retail, higher ed, hospitals) Res: +5 to +10% (SF up, MF down all year) Total construction spending: -4% to +2% Materials costs: 0% to +8% Labor costs: +3% or less
28 AGC economic resources (sign up by email to simonsonk@agc.org) The Data DIGest: weekly one-page email PPI tables: emailed monthly State and metro data Stimulus information: www.agc.org/stimulus Webinars (next construction outlook: 10/22) Feedback on stimulus jobs, credit market