1. Portland Cement Association Cement Outlook
Ed Sullivan, SVP & Chief Economist
March I Rosemont, Illinois

2. Portland Cement Consumption Thousand Metric Tons=

3. Key Macroeconomic Assessments
PCA’s forecast outlook reflects a mild boom-bust scenario.
Fiscal policy initiatives heighten inflationary pressures and result in financial market reactions and Federal Reserve policy reactions.
Key assessments:
Fiscal policy initiatives.
Employment and unemployment rate impacts.
Cost push and demand pull impacts on inflation and inflationary expectations.
Federal Reserve monetary policy countercyclical actions.

4. Key Macroeconomic Changes
Trump’s infrastructure program is pushed back one year from fiscal 2019 to fiscal 2020.
This slows down near term economic growth, softens the boom and delays a milder bust program.
The pace of Federal Reserve interest rate hikes, compared to previous forecast, are slower. This coupled with softer increases in inflationary expectations, lowers the overall interest rate structure compared to the previous forecast.
Construction of “The Wall” is now incorporated into forecast projections.

5. Labor Markets Net Job Creation Monthly Gain
Unemployment Rate U3 Measurement

6. Interest Rates Interest Rates Annual %
Inflation Rate CPUI, Annual % Change
BAA Bond Rate
Conventional Mortgage Rate

7. 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

8. Economic Performance Post Election: Real GDP

9. Fall Forecast: Economic Performance Post Election: Real GDP
50 Basis point reduction in 2017 GDP growth rate.

10. But… Instead of Eroding… It may add to GDP Growth
Conference Board: Consumer Confidence Index: 2010=100
University of Michigan: Consumer Sentiment Index: 2010=100

11. But… Instead of Eroding… It may add to GDP Growth
NFIB: Small Business Sentiment Index: 2010=100
NAHB Housing Market Diffusion Index
Spring Forecast:
2.4% in 2017.
-Confidence adds strength to GDP growth rate.
- Models suggest 1.2% 1st Q growth.

12. 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

13. Fall Forecast: Trump Policies
Most Likely
Least Likely
Infrastructure Investment (L 1, 2018)
Reduce Regulations (EO)
Obamacare Revision (L)
Tax Reform (L 1, 2019)
Immigration Reform (EO)
Illegal Immigration (L)
Building the Wall (L 1)
Trade Reform (L)

14. Spring Forecast: Trump Policies
Most Likely
Least Likely
Infrastructure Investment (L 1, 2019)
Reduce Regulations (EO)
Obamacare Revision (L)
Tax Reform (L 1, 2019)
Immigration Reform (EO)
Building the Wall (L 1, 2018)
Illegal Immigration (L)
Trade Reform (L)

15. Tax 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

16. Trump Tax Policies Impact on Cement Consumption
Stronger Economic
Growth
Construction Spending Accounts for Roughly 6% of GDP
Incremental Tonnage Gains
2017: 0
2018: 0
2019: 70K MT
2020: 410K MT
2021: 980K MT
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.
Apply General Cement Intensity
Citizen Justice
Tax Foundation
Tax Policy Center
Cement Consumption Increases

17. Tax Policy: Revenue Shortfall Trump Face Value, Billion $
Tax Reform may not be neutral and sets the stage for discussion of infrastructure spending.
Direct Tax Shortfall
Shortfall After Economic Expansion

18. Federal Debt Billion Nominal Dollars
Federal Debt is now at nearly $20 trillion. Since the Budget Control Act of 2011, the average annual growth rate of debt increased 31.2% at an average annual growth rate of 14.1% =

19. Federal Debt as a Percentage of GDP Billion Nominal Dollars
As long as GDP grows, the day of reckoning is postponed. A recession could magnify economic troubles. =

20. Trump Infrastructure 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

21. Fall: 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
Months
Average Construction Start: 15 Months or Mid-2018

22. Spring: Infrastructure Timing: Nothing Soon
And now…Based on PCA D.C. assessment may be delayed one year.
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
Months
Average Construction Start: 15 Months or Mid-2019

23. Infrastructure Size of Program
Billion $, Stated As Five Year Spending
With the push-back in the timing of the infrastructure bill to 2019 to coincide with tax reform measures – federal debt issues take center stage and reduce the size of the infrastructure program to Clinton program of $230 billion, or $46 billion annually. =

24. Trump Infrastructure :Time Distribution
Year 1 : 21%
Year 2: 43%
Year 3: 22%
Year 4: 14%

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

26. Trump Infrastructure Spending Scenario
Safe Water
Harbor, Dams & Levees
Electric Grid
Rail
Airports
Public Transit

27. Trump Infrastructure Cement Distribution
Safe Water
Harbor, Dams & Levees
Electric Grid
Rail
Airports
2017: 0
2018: 0
2019: 1.8 MMT
2020: 5.3 MMT
2021: 7.1 MMT
Public Transit

28. 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

29. Trump Immigration Policies
Fall Forecast:
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)

30. Trump Immigration Policies
Spring Forecast:
Trump Immigration Policies
More Likely
Least Likely
Fall forecast only addresses immigration policy impact on labor supply.
Spring forecast includes impact on cement consumption attributed to building the wall.
And … recognizes there are possibly significant adverse impact on consumption…but not addressed in this forecast.
Mass Deportations
Immigration Pause (EO)
E-Verify & Employment Policies (EO)
Hiring Customs Officers (EO)
Penalizing Sanctuary Cities (EO)
Building the Wall

31. 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.
Greater powers could imply higher 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.

32. “The Wall”: Cement Consumption

33. 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

34. 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%.

35. 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.

36. Policy Reaction: Federal Reserve Actions
The Federal Reserve plans for steady, small and increases in the federal funds rate.
These increases are expected to take place as the Federal Reserve reduces financial assets acquired during its Quantitative Easing policies.
The target rate for the Federal Funds Rate is 3.0% to 3.9% in 2020.
This projection does not include monetary policy reactions to large fiscal policy initiatives proposed by the Trump Administration.

37. Intensities 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

38. Composition of Cement Consumption Thousand Metric Tons
Recovery has added 25.4 million metric tons to annual consumption.
46% of the gain is attributed to gains in cement intensity.
Intensity Gains =
Construction Gains

39. Composition of Intensity Changes 2009-2016
4.1 Point Increase Annually
Composition of Construction
SCM Usage
Relative Price & Other
2.2 Point Draw Annually

40. SCM Intensity SCM Consumption per Million Real $
15%
Total Cementious Material
22%
Total Cementious Material =

41. Composition of Cement Consumption Thousand Metric Tons
Intensity Gains =
Construction Gains

42. Conclusion 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

43. Portland Cement Consumption Thousand Metric Tons=

44. Cement Imports Thousand Metric Tons
2021: 22.4%
2016: 14.4% =
Percentages are Imports Market Share

45. Capacity Utilization Rate Percent of Effective Capacity
2021: 82% =
2011: 62%

46. Portland Cement Association Cement Outlook
Ed Sullivan, SVP & Chief Economist
March I Rosemont, Illinois