Construction

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Construction Materials Outlook

• November 6, 2008
• Ken Simonson, Chief Economist
• AGC of America
• simonsonk_at_agc.org
• www.agc.org

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Current economic influences

• Credit market freeze affecting private, state and
  local borrowers
• Weak economic outlook, falling state spending
• No job growth, rising unemployment
• Wages, personal income lt CPI change

Source Author, from BEA (GDP, personal income),
BLS (CPI, employment, unemployment)
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The shifting construction market(total change
September 2007 September 2008 -7)
Source Census (construction spending)
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Single-family (SF) vs. multifamily (MF)

• September construction spending (value put in
  place)
• SF -4.7 vs. August, -41 vs. 9/07
• MF 2.7 vs. August, -1.7 vs. 9/07
• Improvements 2.4 vs. August, -6.5 vs. 9/07
• September building permits
• SF -3.8 vs. August, -38.9 vs. 9/07
• MF -16.4 vs. August, -37.6 vs. 9/07
• September housing starts
• SF -12.0 vs. August, -41.9 vs. 9/07
• MF 7.5 vs. August, 9.6 vs. 9/07

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Source Census
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Housing outlook

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

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Source Author
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Nonres 07 totals, change 08 YTD change
Source Census
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Leading segments in 2008 - 2009
Source Author
8
Weaker segments in 2008 - 2009
Source Author
9
Spending outlook for 2008 - 2009
Source Census Author
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Materials and components
Source BLS (CPI, PPI)
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Change in Producer Prices for Construction vs.
Consumer Prices, 2003 - 2008 (December 2003 100)
Sep. 2008
Source BLS (CPI, PPI)
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Change in Producer Prices for Construction
Segments, 2003 - 2008 (December 2003 100)
Sep. 2008
Source BLS (CPI, PPI)
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Change in Producer Prices for Major Construction
Inputs, 2003 - 2008 (December 2003 100)
Sep. 2008
Source BLS (CPI, PPI)
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Producer Price Indexes, 2007 vs. 2008
No. 2 Diesel FuelChange from 9/07-9/08 39
Steel Mill ProductsChange from 9/07-9/08 38
Asphalt Paving Mixtures BlocksChange from
9/07-9/08 51
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Producer Price Indexes, 2007 vs. 2008
Gypsum ProductsChange from 9/07-9/08 1.7
Lumber and PlywoodChange from 9/07-9/08 -3.4
Concrete ProductsChange from 9/07-9/08 4.3
Copper Brass Mill ShapesChange from 9/07-9/08
-2.9
15
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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 -2 to 2

Source Authors forecasts
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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 6-8 PPI increases, higher spikes

Source Authors forecast
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Construction jobs fall, but wages rise
Employment
Average Hourly Earnings
Source BLS
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Implications for 2008-09 wages

• Nonres employment actually includes another
  523,000 res specialty trades
• Thus, res change 8/07-8/08 was -28, not -11
  nonres change was 11, not -2
• Biggest demand in 08 will be for crane
  operators, other scarce skills
• Wages in 08 will rise 5 to 6 vs. 4.1 in 07
• Nonres slump in 09 will slow wages to 3-4.5

Source Authors forecasts
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State construction employment, 9/07
9/08 (U.S. total -6.1)
5 Biggest Losses
5 Biggest Gains
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Source BLS
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State construction employment, 9/07 9/08
WA
NH
MT
ND
ME
VT
MN
OR
ID
MA
WI
NY
SD
WY
MI
RI
CT
PA
NV
IA
NE
NJ
OH
IL
UT
IN
DE
CO
WV
VA
CA
KS
MO
KY
MD
NC
TN
AZ
DC
OK
NM
AR
SC
AL
GA
MS
LA
AK
AK
TX
FL
HI
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Summary for 2008

• Nonres spending 6 to 11 (led by energy,
  power, communications, hospitals, higher ed
  weaker highway, retail, office, lodging)
• Res -25 to -30 (no turnaround before 09)
• Total construction spending -6 to -10
• Materials costs 6 to 8
• Labor costs 5 to 6

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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 -2 to 2
• Labor costs 3 to 4.5

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