Construction

1
Construction Materials OutlookSinking Demand,
Higher Costs

• National Chapter Leaders Meeting
• Washington, April 27, 2008
• Ken Simonson, Chief Economist
• Associated General Contractors
• simonsonk_at_agc.org

2
Current economic influences

• Weak but positive GDP growth (0.6-2)
• Rising inflation (CPI change 3-4)
• Slim job growth, moderate unemployment (lt100K
  jobs/mo., 5 unem. rate)
• Rising real wages, personal income (lt1)
• Worries about housing, credit, falling dollar

Source Author, from BEA (GDP, personal income),
BLS (CPI, employment, unemployment)
3
The shifting construction market
Source Census (construction spending)
4
Current housing situation

• March jobs -31,000 vs. Feb., -285,000 vs. 3/07
• March permits -5.8 vs. Feb., -41 vs. 3/07
• March starts -12 vs. Feb., -36 vs. 3/07
• Feb. spending -0.9 vs. Jan., -19 vs. 2/07
• March new-home sales -8.5 vs. Feb., -37 vs.
  3/07
• Inventories, time on market remaining high

Source BLS (jobs), Census (construction
spending, permits, starts, sales)
5
Single-family (SF) vs. multifamily (MF)

• Feb. construction spending (value put in place)
• SF -5.7 vs. Jan., -34 vs. 2/07
• MF -0.3 vs. Jan., -19 vs. 2/07
• March building permits
• SF -6.2 vs. Feb., -42 vs. 3/07
• MF -5 vs. Feb., -23 vs. 3/07
• March housing starts
• SF -5.7 vs. Feb., -44 vs. 3/07
• MF -25 vs. Feb., -6.6 vs. 3/07

Source Census
6
Housing outlook

• SF No relief yet for decline in permits, starts
  or spending
• Starts wont improve until late 08 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

Source Author
7
Nonres 07 totals, shares, change from 06
Source Census
8
Leading Segments in 2008
Source Author
9
Weaker Segments in 2008
Source Author
10
Materials and components
Source BLS (CPI, PPI)
11
Change in Producer Prices for Construction vs.
Consumer Prices, 2003-2008 (December 2003100)
Source BLS (CPI, PPI)
12
Change in Producer Prices for Construction
Segments, 2003-2008 (December 2003100)
Source BLS (CPI, PPI)
13
Change in Producer Prices for Major Construction
Inputs, 2003-2008 (December 2003100)
Source BLS (CPI, PPI)
14
Change in PPIs for Selected Highway Inputs,
2003-2008 (December 2003100)
Source BLS (CPI, PPI)
15
Change in PPIs for Selected Building Inputs,
2003-2008 (December 2003100)
Source BLS (CPI, PPI)
16
Change in Producer Prices for Steel Products,
2003-2008 (December 2003100)
Source BLS (CPI, PPI)
17
Diesel Fuel Prices (cents per gallon)
Source Energy Information Administration
18
Outlook for materials in 2008

• Falling prices wood, gypsum products
• Likely to rise diesel, steel, copper maybe
  asphalt, plastics
• No shortages but longer lead times for some items
• Year-over-year PPI change 6-8 highest for
  highway/heavy less for buildings

Source Authors forecasts
19
Outlook for materials (1-5 years)

• Construction remains dependent on specific
  materials
• Same materials in demand worldwide, w/ uncertain
  supply growth (e.g., copper, oil)
• 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
20
Construction labor costs, availability

• Change in average hourly earnings, 3/07-3/08
  construction 4.3 nonfarm private sector 3.6
• Employment change const -4.6 total 0.4
• Residential construction -8.7(residential
  building specialty trades)
• Nonresidential construction -1.6(nonres
  building specialty trades, heavy civil
  engineering const.)
• Architectural, engineering services 2.8

Source Authors calculations from BLS
21
Change in Construction Employment, Feb. 2006-Feb.
2008 (February 2006 100)
22
Adjusted Change in Construction Employment, Feb.
2006-Feb. 2008 (February 2006 100)
23
Implications for 2008 wages

• Nonres employment actually includes another
  330,000 res specialty trades
• Thus, nonres change 3/07-3/08 was 5.9, not
• -1.6
• Biggest demand in 08 will be for crane
  operators, other scarce skills
• Wage growth will be 5-6 vs. 4.1 in 07

Source Authors forecastsç
24
Summary for 2008

• Nonres spending 4-8 (led by energy, power,
  communications, hospitals, higher ed weaker
  retail, office, lodging)
• Res -20 to -15 (turnaround in late 2008)
• Total construction spending -6 to -2
• Materials costs 6-8
• Labor costs 5-6

25
AGC Economic Resources

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

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