Portland Cement Association United States’ Cement Outlook Ed Sullivan, SVP Chief Economist November 2016 I Breakers Hotel, Palm Beach Florida

Pre-Election Economic Fundamental Trends Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Underlying Economic Fundamentals Are Sound Labor Market is solid. Unemployment is below 5%. Wages are starting to increase. While inflation is increasing, its growth is sluggish, remains low and below the Federal Reserve’s target inflation rate (2%). Interest rates are extremely low by historical standards and are growing slowly. Home prices and consumer wealth are increasing. Household debt to income ratio is lowest in history. While we continue to record deficits, GDP growth has kept debt burden low.

Net Job Creation Monthly Gain

Unemployment Rate U3 Measurement

Inflation CPIU, Annual % Change

Interest Rates Annual % BAA Bond Rate Conventional Mortgage Rate

a Election Impact on Economic Growth Momentum: Uncertainty & Expectations Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Economic Performance Post Election: Confidence

Economic Performance Post Election: Real GDP

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Election Impact on Momentum Uncertainty increases and results in higher lending risk premiums, delays in investment spending, and a pause in consumer spending. Economic growth slows by 50 basis points during the 4th Quarter 2016 and 100 basis points during the 1st Quarter 2017 followed by 50 basis points in the 2nd Quarter. Growth in construction activity reduced by as much as 50% in each quarter compared to the baseline forecast.

Trump Policy Initiatives Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Legislative Assumptions Leads to Three Scenarios: Republicans Take House/Senate (Need 60 Senate, Progress Faster) Post-Election Leads to Three Scenarios: 1). Trump program proceeds at Face Value. 2.) Trump program is accented by compromise (Lite). 3.) Congress resists and Impasse materializes. =

Trump Policies That Impact Economic Growth Most Likely Least Likely Infrastructure Investment (L) Reduce Regulations (EO) Obamacare Revision (L) Tax Reform (L) Immigration Reform (EO) Illegal Immigration (L) Building the Wall (L) Trade Reform (L)

Trump Policies That Impact Economic Growth Most Likely Least Likely Infrastructure Investment (L) Reduce Regulations (EO) Obamacare Revision (L) Tax Reform (L) Immigration Reform (EO) Illegal Immigration (L) Building the Wall (L) Trade Reform (L)

Timing: Economic Scenario 2017 No legislative policy initiatives. Executive orders (EO) occur on regulations & immigration. 2018 Infrastructure program initiated. Regulation & Immigration EO continue. 2019 Tax Reform program initiated. Infrastructure continues.

Trump Infrastructure Initiatives (2018) Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Infrastructure Timing: Nothing Soon One Month Six Months One Year Eighteen Months House & Senate Passage 1-9 Months Federal & State Paperwork 4-12 Months Bid Letting & Review 6-15 Months Contract Award to Construction 11-22 Months Average Construction Start: 15 Months or Mid-2018

Infrastructure Size of Program Billion $, Stated As Five Year Spending Face Value : $100 billion annually (mid-2018). Trump Lite: $46 billion annually (Clinton mid-2018). Impasse: No significant increase.. =

Trump Infrastructure Policy Level and specifics of Trump infrastructure spending are cloudy. As such, creating impact estimates for cement consumption becomes problematic. Sanders Senate Bill (S.268) specifically identifies investments in various infrastructure areas based on a $1 trillion five year program. PCA scenarios suggests: Face value: $1 trillion ten year program or $500 billion five year program. Trump Lite: $275 billion five year program (Clinton). Impasse: No significant increase. Assume Trump Infrastructure Plan differs from S.268 only in funding not distribution. As such, PCA uses S.268 as a proxy for the Trump plan. This yields estimates for specific dollar spending amounts that can be applied for Trump Spending proxies and then later converted into cement consumption estimates.

a Broadband Pedestrian Electric Grid Trump “Face Value” Infrastructure Scenario: $ $100 Million Annually, 5 Year Package Harbor, Dams & Levees Safe Water Rail Airports Public Transit

Trump Infrastructure :Time Distribution Calendar Year Conversions 2018: $10.5 Billion 2019: $42.5 Billion 2020: $75.0 Billion 2021: $93 Billion Based on ARRA spending & DOT

S&L Sterilization Changes in Spending, Mil $ 88% State & Local Sterilization Assumption 20%

Trump Infrastructure Scenario: Cement Distribution of Gains Safe Water Harbor, Dams & Levees Electric Grid Rail Trump Infrastructure Scenario: Cement Distribution of Gains Airports Public Transit

Cement Consumption Infrastructure Scenarios Shorten Spending Horizon to 2 Years and No Sterilization… Trump Face Value totals 38 MMT

Average Concentration Highest Concentration Deficient Roads Lane miles rated ‘poor’ as a share of total lane miles ME RI MA VT NH AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH WV VA NC MD DE PA NY CT NJ KY Average Concentration Lowest Concentration Source: PCA Highest Concentration

Highest Concentration Average Concentration Deficient Bridges Structurally deficient and functionally obsolete share of national total ME RI MA VT NH AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH WV VA NC MD DE PA NY CT NJ KY Highest Concentration Average Concentration Lowest Concentration Source: PCA

Regional Funding Allocations Estimated allocation of funding based on stock of deficient roads & bridges ME RI MA VT NH AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH WV VA NC MD DE PA NY CT NJ KY Top Third Middle Third Bottom Third Source: PCA

Trump Tax Reform Initiatives Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Trump Tax Policies Tax Reductions Ten Year Revenue Loss Individual (77%) Corporate (20%) Estate (3%) Increases GDP Adds Net New Jobs Ten Year Revenue Loss Citizen Justice (-$12 Trillion) Tax Foundation (-$12 Trillion) Tax Policy Center (-$9.5 Trillion)

Tax Policy: RGDP Growth Billion $ Reaction to tax cut takes time to incubate. Stimulus adds 20 BP to growth initially in Q1 2019, and increases to 110 BP by Q4 of 2021.

Tax Policy: RGDP Growth Billion $ Tax Reform Avg. Annual RGDP Growth Face Value: 2.8% Impasse Tax Reform Avg. Annual RGDP Growth 2.3% Trump Lite Avg. Annual RGDP Growth 2.6%

Cement Consumption Tax Scenarios Stimulatory Impact of Tax Reform is sensitive to the degree of relief, its target & the form. Tax multipliers range from 0.3 to 5. Estimates represent risk.

Tax Policy: Revenue Shortfall Trump Face Value, Billion $ Direct Tax Shortfall Shortfall After Economic Expansion

Tax Policy: Cumulative Debt Billion $ Assumes Infrastructure is Deficit Neutral. It will likely imply a deficit – added atop these estimates. Add Military Spending. Add Wall.

Tax Policy: Interest Payments Billion $ Interest payments on debt already account for $231 billion or 6.1% of total Federal spending. Tax Reform alone increases interest payments by 70% over current levels.

a Tax Reform Impact Assume that Tax Reform is embraced by Republicans and enacted January 1, 2019. Stimulates RGDP growth by 50 basis points in 2019 and 110 basis points in 2020 and beyond. Adds 300K metric tons to baseline in 2019, 900K metric tons in 2020, 2.1 million tons in 2021, and 3.4 million metric tons in 2022. Added economic growth, on an already stressed labor market drives unemployment down. Wages rise at an accelerated pace. Higher wages lead to higher inflation and a harsh reaction by the Federal Reserve. Adverse interest rate impacts assessed later.

Immigration Reform a Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Trump Immigration Policies More Likely Least Likely Mass Deportations Building the Wall Immigration Pause (EO) E-Verify & Employment Policies (EO) Hiring Customs Officers (EO) Penalizing Sanctuary Cities (EO)

a Immigration Scenario Based on Center for Immigration Studies, past peak deportations were roughly 400,000 and 5,000 customs agents were deployed. That translates into 80 annual deportations per agent. Trump hires 10,000 additional agents. At 80 deportations per agent, that implies a potential of 1.2 million deportations. 46% of deportees return within one year. That leaves a net decline of roughly 650,000 annually. This is supplemented with voluntary departures of roughly 500,000 annually. 60% of which return in one year. That leaves a net total decline in illegal immigrants of 850,000 annually.

Labor Force Estimate Policy Only, No Reaction Trump Lite Value: 2021 – 1.7 million Trump Face Value: 2021 – 3.3 million =

Market & Policy Response Presentation Summary of Results Comparative Life Cycle Analysis Research Building Materials Single Family, Multi Family, and Commercial Structures Done By MIT Concrete Sustainability HUB

Unemployment Rates U3 Measurement, No Reaction Impasse/Baseline

Construction Skill Shortage May Be Worsening To Maintain 1 to 1 Ratio an additional 200K workers hired in 2015 & 300K in 2016. This implies the skill shortage is worsening

Hardest Construction Positions to Fill

Unemployment Rates U3 Measurement, No Reaction Impasse/Baseline Uncertainty & Infrastructure

Unemployment Rates U3 Measurement, No Reaction Impasse/Baseline Uncertainty & Infrastructure Uncertainty, Infrastructure & Tax Reform

Unemployment Rates U3 Measurement, Policy Only No Reaction Impasse/Baseline Uncertainty & Infrastructure Uncertainty, Infrastructure & Tax Reform Uncertainty, Infrastructure, Tax Reform & Immigration Reform

a Marketplace Reaction Financial markets react first as inflation expectations get baked into long interest rates. The yield curve steepens. Risk premiums on loans begin to edge up. Pressure on wages increases as unemployment is pushed lower. Nonlinear relationship. Wages increase faster given a 100 basis point decline in unemployment when rates are at 4%, than when they are at 5%.

Marketplace Reaction With wage increases, labor force expands. Business invests in labor saving machinery – results in a tripling in labor productivity by 2021 (If not, wages rise further). This investment will occur during a period of monetary policy tightening (high and rising interest rates). Some jobs are foregone to detriment of GDP growth.

Wage Growth Scenarios Annual % Change, Employment Cost

Inflation Scenarios Annual % Change, CPIU

Interest Rate Scenarios Annual % Change, Federal Funds

GDP Growth Scenarios Annual % Change, Real GDP

Cement Consumption Scenarios Annual % Change 8.3% 6.0% 4.4% 4.0% 3.5% 3.6% 3.5% 1.5% 3.1% 2.8% 0.1% 3.6% -0.6% -5.3%

Portland Cement Association United States’ Cement Outlook Ed Sullivan, SVP Chief Economist November 2016 I Breakers Hotel, Palm Beach Florida

Build the Wall 1,000 miles. Height: 35’-40’. Width: 6’-10’. Cost Range: $17.1 Billion to $29.6 Billion. Five years to Complete. Cement Consumption: Total: 7.0 MMT to 12.7 MMT. Per Annum: 1.2 MMT to 2.5 MMT

At 90% Utilization: US Supply Potential Approximates 145 MMT. US Supply 000 Metric Tons Supplementary Cementitious Materials Import Cement Capacity Import Clinker Capacity Domestic Clinker Capacity At 90% Utilization: US Supply Potential Approximates 145 MMT.