Construction & Materials Outlook Austin Chapter – AGC February 25, 2011 Ken Simonson, Chief Economist AGC of America

Current economic influences on construction GDP, personal income: gradual acceleration Continuing problems for office, retail, warehouse Loans for developers remain tight-to-unavailable State/local spending: infrastructure not a priority Federal spending helped but may decline soon Price spikes for diesel, copper, possibly steel 2

Federal funding sources and outlook Stimulus: 61 programs, totaling $135 billion; at peak now Base realignment: at peak now, due to end 9/30/11 Gulf Coast hurricane work: at peak, due to end 6/1/11 Highway, airways trust funds: on short-term extension Water, wastewaster state revolving funds: flat or down 3

Construction-related stimulus funding (~$135 bil.) $49 billion up to $35 billion $30 billion $21 billion 4

Construction spending: trend, latest level, 12-mo. change Seasonally adjusted annual rate (SAAR), March 2006-December 2010 ▬ Total Construction: $788 billion, -6% ▬ Public: $301 billion, 0% ▬ Private Nonres: $260 billion, -12% ▬ Private Residential: $226 billion, -7% 5 Source: Census Bureau construction spending reports

Nonres totals (billion $, SAAR), share & 12-month change 12/10 TotalShare12/09-12/10 Nonresidential$552 billion 100 %- 6 Power Highway and street Educational Transportation Health care Commercial Manufacturing Office Sewage and waste disposal Communication Amusement and recreation Other (water, public safety; lodging; conservation; religious): 9% of total 6 Source: Census Bureau construction spending report

Construction spending: public works (billion $, SAAR) 7 Latest 1-mo. change: -1.6%, 12-mo.: 8%Latest 1-mo. change: -2.1%, 12-mo.: 4% Latest 1-mo. change: 0.8%, 12-mo.: 0%Latest 1-mo. change: -2.8%, 12-mo.: 0% Source: Census Bureau construction spending reports

Construction spending: institutional (private + state/local) 8 Latest 1-mo. change: -4.1%, 12-mo.: -7%Latest 1-mo. change: 0.3%, 12-mo.: -4% Latest 1-mo. change: -2.3%, 12-mo.: -17%Latest 1-mo. change: -6.4%, 12-mo.: -23% Source: Census Bureau construction spending reports

Construction spending: industrial, heavy (billion $, SAAR) 9 Latest 1-mo. change: 2.1%, 12-mo.: 13%Latest 1-mo. change: -1.5%, 12-mo.: -25% Latest 1-mo. change: 1.6%, 12-mo.: -9%Latest 1-mo. change: -4.9%, 12-mo.: 4% Source: Census Bureau construction spending reports

Construction spending: developer-financed (billion $, SAAR) 10 Latest 1-mo. change: 0.1%, 12-mo.: -18%Latest 1-mo. change: 0.2%, 12-mo.: -27% Latest 1-mo. change: 4.6%, 12-mo.: -29%Latest 1-mo. change: -5.2%, 12-mo.: -49% Source: Census Bureau construction spending reports

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 11Source: Prof. Stephen Fuller, George Mason University

▬ Nonresidential 1-mo: -1.1%, 12-mo: -1.9% ▬ Residential 1-mo: 0.2%, 12-mo: -4.4% Construction and total private employment, 2008-Jan Latest 1-mo. change: -0.6%, 12-mo.: -2.3%Latest 1-mo. change: 0.0%, 12-mo.: 1.2% Latest 1-mo. change: -0.8%, 12-mo.: 1.6% Source: Census Bureau construction spending reports

13 Source: BLS state and regional employment report -6% -2% -4% -6% -12% -5% 0.5% -19% -1% -5% -2% -1% -2% 5% 9% 6% -5% 1% -9% 2% -6% -1% -7% -10% 1% -4% -5% -1% -0.1% -4% -6% -8% -6% 1% -9% 2% -2% HI 1% -3% VT 0% CT -7% RI -7% DE 4% NJ -4% MD 2% DC 3% NH 4% -10 to -19%-3 to -9%-0.1 to -2%0 to 9% MA 1% State Construction Employment Change (U.S.: -3%) 12/09 to 12/10 (seasonally adjusted)

Source: BLS 14

Construction Employment Change from Year Ago Not seasonally adjusted (NSA) Source: BLS 15 Austin-Round Rock- San Marcos -4% 162 out of 337 U.S. -3% Texas 6% 2 out of 51

Change in construction employment, 12/09-12/10 Metro area or division 12-mo. empl. change (NSA) Rank (out of 337) Statewide6%- Austin-Round Rock-San Marcos*-4%162 Beaumont-Port Arthur*6%12 College Station-Bryan*6%12 Corpus Christi*5%21 Dallas-Plano-Irving, Div.*2%48 El Paso*5%21 Fort Worth-Arlington, Div.*-1%107 Houston-Sugar Land-Baytown-1%107 Longview*5%21 McAllen-Edinburg-Mission*0%68 Midland*4%31 Odessa*5%21 San Antonio-New Braunfels-0.2%106 *Mining and logging included with construction Source: AGC rankings, calculated from BLS state and area employment reports 16

Construction employment, wages, costs and output prices 17 not seasonally adjusted, █ construction █ total12-mo. % change, 2008-Jan (1/10-1/11: 4.9%) 4-quarter % change, Q 2010 (4Q09-4Q10: 0.9%) 12-mo. % change, January 2010-Januray 2011 Source: BLS employment, employment cost index, producer price index (PPI) Unemployment rates, Jan Jan. 2011Producer price index for construction inputs Employment cost index for constructionPPI for construction inputs, finished buildings

CPI vs. PPI for construction inputs, new offices 18Source: Author, based on BLS producer and consumer price index reports

Producer price indexes, 1/08-1/11 19 Latest 1-mo. change: 3.2%, 12-mo.: 17.7%Latest 1-mo. change: 2.0%, 12-mo.: 11.5% Latest 1-mo. change: 3.3%, 12-mo.: 9.9%Latest 1-mo. change: 1.0%, 12-mo.: 9.2% Source: BLS producer price index reports

Producer price indexes, 1/08-1/11 20 Latest 1-mo. change: 0.1%, 12-mo.: 3.3%Latest 1-mo. change: 0.1%, 12-mo.: 0.0% Latest 1-mo. change: -3.3%, 12-mo.: 0.5%Latest 1-mo. change: 2.0%, 12-mo.: 7.4% Source: BLS producer price index reports

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 8% PPI increases 21 Source: Author

Latest 1-mo. change: -5.3%, 12-mo.: -28% Single- vs. multi-family, , seasonally adjusted annual rate (SAAR) Single-family & improvements spending ▬ SF (1-mo 0%, 12-mo -4%), ▬ Imp (1-mo -8%, 12-mo -6%) Multi-family permits & starts ▬ Permits (1-mo -24%, 12-mo 18%) ▬ Starts (1-mo 78%, 12-mo 81%) Single-family permits & starts ▬ Permits (1-mo -5%, 12-mo -17%) ▬ Starts (1-mo -1%, 12-mo -19%) Source: Census Bureau construction spending, housing starts reports22

Housing outlook SF: starts, permits should rise gradually in ’11 MF: Upturn has begun, should accelerate in ’11 - Rental demand should rise as more people get jobs or move to military base realignment sites - Condo market continues to have large overhang - Banks remain unwilling to lend to developers 23 Source: Author

AGC/Navigant Consulting Construction Outlook Survey 24 Source: AGC/Navigant Consulting, Inc Survey, 1/25/2011 Did you add or lay off employees in 2010?Do you plan to add or lay off workers in 2011?

AGC/Navigant Consulting Construction Outlook Survey 25 Source: AGC/Navigant Consulting, Inc Survey, 1/25/2011 Have you adjusted your bids in 2010 so that profits are: Do you plan to adjust your bids in 2011 so that profits are:

Compared to 2010, do you expect the available dollar volume of projects you compete for in 2011 to be: PowerHospital/ higher education Water/ sewer Public building Manu- facturing Retail ware- house lodging K-12 school HighwayOther trans- portation Private office Higher Same Lower 26 Source: AGC/Navigant Consulting, Inc Survey, 1/25/2011

AGC/Navigant Consulting Construction Outlook Survey 27 Source: AGC/Navigant Consulting, Inc Survey, 1/25/2011 When do you expect the construction market to again grow?

Summary for 2011 Nonres spending: 0 to +5% (less stimulus; weak state- local; more warehouse, hotel, hospitals, higher ed) Res: +5 to +10% (SF up a bit, MF accelerating) Total construction spending: +3 to +7% Materials costs: +3% to +8% Labor costs: +2.5% or less 28 Source: Author

AGC economic resources ( The Data DIGest: weekly 1-page (subscribe at: PPI tables: ed monthly State and metro data, fact sheets Stimulus info: Webinars (next: 3/3 with AIA, Reed) Feedback on stimulus, credit, costs 29