1. Cement & Construction Outlook
MCA Winter Conference
February 16, 2009
Dave Zwicke, PCA Regional Economist

2. Overview Economic fundamentals are deteriorating quickly.
Outlook shaped by policy actions.
Details and size of the stimulus plan are fluid and still subject to considerable change….adds risk to PCA projections.

3. Introduction: The Need For Stimulus…
Lacking stimulus, the economy enters a deep and long contraction
GDP declines 2.7% in 2009 and another 1.5% in 2010
An additional 6 million more jobs lost and unemployment reaches 10.4%
State deficits reach $79 billion in 2009, $102 billion in 2010.
Cement consumption declines 15% in 2009 followed by another 8.5% in 2010.
Single Family housing starts decline to 400,000 annually in 2009 and Significant recovery does not materialize until 2012.

4. Cement Consumption – U.S.
(000) Metric Tons
Stimulus =
Peak (2005)-to-Trough Decline:
No Stimulus: MMT
With Stimulus: -40 MMT

5. Construction Turning Points
1996=100 =

6. The Bottom Line Economic outlook remains dim…and getting darker.
Adversity may continue longer than expected.
No recovery in housing until 2010
Nonresidential decline slower to materialize…longer recovery
Potential of fiscal crisis at State level brewing
Sharp Recovery may materialize beginning in 2011

7. Economic Outlook

8. Economic Outlook: Five Factors
Financial
Crisis
Labor Markets
Sub-Prime
Energy
Inflation
Mortgage Payments
Credit Cards
Defaults
Tight Lending Standards
Home Price Declines
Reliance on Home Equity Gone
Defaults
Write-Downs
Risk Aversion
Tight Lending Standards
Commercial, Consumer, homeowner capital access reduced
Global
Structural Global Realities
Gasoline Prices
Heating Prices
Cost of Business
Adds Weakness to Dollar
Energy Prices
Fertilizer/Biofuels hit Ag Prices
Supply Side Costs Ingrained
Expected Inflation Rises
Fed Tightens
Short and Long Term Interest Rates Rise
Slower Economic Growth
One Million Job Loss in 2008
Housing Recovery Delayed
Nonresidential Declines
State Fiscal Crisis Looming
Public Declines

9. Economic Adversity 2006 2007 2008 2009 2010 Housing Energy Financial
Crisis
Inflation
Labor Markets

10. States in Recession July 2007 October 2008 December 2008 May 2008ME 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 KY WV VA NC PA NY AK
July
2007 ME 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 KY WV VA NC PA NY AK HI
October 2008 ME 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 KY WV VA NC PA NY AK HI
December 2008 ME 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 KY WV VA NC PA NY AK HI
May
2008 ME 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 KY WV VA NC PA NY AK HI
January
2008 NH VT MA RI CT NJ DE MD
Recession
At Risk
Growing
Source: PCA/BLS

11. Unemployment Rate -- % Change Year Ago
The Stage Has Been Set…
Unemployment Rate -- % Change Year Ago
= Recession
=rise does not mean recession, but never had recession w/o rise in unemployment
Source: BLS

12. Change in payroll jobs (000)
Employment declines …
Change in payroll jobs (000)
=While the payroll survey has generally been viewed as more accurate in counting the overall employment, there is strong evidence that the payroll survey’s accuracy diminishes in periods of economic transition. Hence it tends to overstate employment in downturns and understates employment in upturns. YTD: -760, : 1,096, (70%) 5 YR Average 127k/month
Source: BLS

13. Missouri Unemployment
Unemployment Rate
= Recession
MO 2007: +16.8k
2008: -26.5k
Source: BLS

14. Housing had been the catalyst…
Units (000)
Annual Growth =
Source: Census, S&P Case Shiller

15. Consumers now a major drag…
Annual Percent Change

16. Monetary Policy Federal Funds Rate
Recession Risks Prompt Fed Rate Cuts
Long Recognition Lag By Fed…Forcing More Aggressive Policy Posture

17. Fiscal Stimulus Impacts 2nd half 2008 – 1st half of 2009
$150 Billion Rebates
Expected to reduce depth and duration of recession
Fiscal policy may shorten economic downturn and accelerate recovery…but it will NOT AVERT the recession

18. Energy Prices may offset fiscal stimulus…
Unleaded Gas, $ Per Gallon
Every 1 Cent Increase at the Pump Takes $1 Billion Out of Consumer’s Pockets on an Annualized Basis
Jan - Sep, Gasoline Prices have increased $.92 cents = Equating to a $92 Billion Annualized Draw on Consumer Spending
Source: Department of Energy

19. Economic Growth Outlook
Percent Change, GDP Growth Rate
Recession Scenario: With Stimulus
Recession Scenario: No Stimulus

20. Residential Construction

21. Cement Demand Composition: 5Y AVG
U.S.
Missouri
Public
Residential
Nonresidential

22. Composite contract rate % Fed began cutting rates
Mortgage Rates
Composite contract rate %
Fed began cutting rates
Easy Credit Period

23. Foreclosures continue to rise…
1st
2nd
3rd
% of loans 90 days past due, SA
3 waves
1st speculators
2nd subprime and ARMs
3rd Unemployment
Source: Mortgage Bankers Association

24. Foreclosures are concentrated…=
Below U.S.
US: 1.8%
Near U.S.
Above U.S.
% of households defaulting on their 1st mortgage, 08Q2
Source: Equifax, Economy.com

25. Home Prices will stabilize in late 2009
Existing Single Family Homes
High Inventories Will Depress Prices
Into 2009

26. Missouri Housing Permits
Units
= Housing Peaked January 2006
2007: -29% : -37% : 0.0% :+34%

27. Missouri Housing Market
Annual % Change -- Single Family Median Home
Market
Economy
Source: National Association of Realtors

28. Residential Cement Consumption
Metric Tons =
Source: PCA

29. Nonresidential Construction

30. Nonresidential Construction
Nonresidential Strength in
Favorable ROI supported by active investment environment
Pent-up Commercial Demand
Easy Credit Conditions
Nonresidential Softening in
ROI Softens With Overall Economic Weakness
Credit Conditions Tightening
Risks and Uncertainty Grow

31. TED Spread – Difference between 3m T-Bill & LIBOR
Financial Liquidity
Sub Prime
= Credit crisis are nothing new. Difference is the length—currently going on one year. Will impact nonresidential construction.
TED Spread – Difference between 3m T-Bill & LIBOR

32. Nonresidential Cement Consumption – MO
Metric Tons =
Source: PCA

33. Nonresidential Share of Total Cement Consumption
Exposure to Credit Crisis
Nonresidential Share of Total Cement Consumption 1
NORTH DAKOTA
28% 2
NEBRASKA
21% 3
KANSAS 4
IOWA
20% 5
MINNESOTA 6
INDIANA
18%
NATIONAL 7
WISCONSIN
16% 8
SOUTH DAKOTA 9
OHIO
15% 10
ILLINOIS 11
MISSOURI
14% 12
MICHIGAN
12%
Source: PCA

34. Office Vacancy Rates.
Percent Vacant
Source: CB Commercial

35. Metros with largest increase in vacancy rate, % Vacant
Office Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q4, 2008 =
Q4, 2007
Source: CBRE

36. Office Cement Consumption - MO
Metric Tons =
Source: PCA

37. Industrial Vacancy Rates
Percent Vacant
Source: CB Commercial

38. Industrial Production – U.S.
Institute of Supply Management Index
Source: CB Commercial

39. Industrial Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q4, 2008
Q4, 2007 =
Source: CBRE

40. Industrial Cement Consumption- MO
Metric Tons =
Source: PCA

41. Source: U.S. Census Bureau
Retail Sales Decline…
Annual Percent Change
Source: U.S. Census Bureau

42. Retail Cement Consumption
000 Metric Tons =
Source: PCA

43. Public Construction

44. Cement Demand Composition: 5Y AVG
U.S.
Missouri
Public
Residential
Nonresidential

45. Deficit % Share of Total Expenditures
2009 Fiscal Deficits
Deficit % Share of Total Expenditures 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 KY WV VA NC MD DE PA NY CT NJ HI =
No Deficit
0-10%
11%-15%
16% +
Source: PCA/Census

46. Fiscal Health - Missouri
Surplus/Deficit Index, 2005=100
Surplus
Deficit =

47. Exposure to Fiscal Deficits
SAFETEA-LU Share of Total Highway Spending 1
MINNESOTA
25% 2
IOWA
26% 3
KANSAS
29% 4
ILLINOIS 5
OHIO
34% 6
MICHIGAN
NATIONAL 7
WISCONSIN
35% 8
NEBRASKA
39% 9
MISSOURI
40% 10
INDIANA 11
SOUTH DAKOTA
49% 12
NORTH DAKOTA
Source: PCA

48. Public Cement Consumption - MO
000 Metric Tons
2008: -2.0%
2009: -8.3%
2010: -2.6%
2011: +4.1% =
Source: PCA

49. Take a Step Back…

50. Current Stimulus Plan $787 Billion $120B Infrastructure/Science
$27.5B Highways (Missouri: $637 Million)
Allocation (70% State / 30% Local)
$196B Aid to State Governments
$54B Fiscal Relief
$282B Tax Cuts

51. “Shovel Ready” Timeline
Jan
Feb
March
April
May
June
July
August
House Bill
Obama Inaugurated
Job Creation May Come Later Than Many Expect
Senate Passes & Bill Signed
Federal Paperwork
State Paperwork
Bid Letting
Bid Review
Contractor Paperwork
Construction Begins

52. Stimulus Timeline Phase I Phase II Phase III 2009 2010 2011
Policy Tool
Objective
2009
2010
2011
Job Saving
Job Creating
Tax Cuts, Entitlement Spending, State Aid
Stabilize Economy, halt adverse momentum
Phase I
Shovel Ready Projects
Job Creation
Phase II
Job Creation, Address Structural Economic Issues
Long Term Investments
Phase III

53. U.S. Cement Demand -- Senate Stimulus Scenario
2009
2010
2011
Fall Forecast
85,485
83,327
91,507
Annual Change
-11.6%
-2.5%
9.8%
No Stimulus
76,950
70,025
76,327
-19.0%
-9.0%
9.0%
Direct Tons
5,004
16,972
6,641
Indirect Tons
500
3,394
13,281
Total Added Demand
5,504
20,366
19,922
Total Market
82,454
90,391
96,248
-13.2%
9.6%
6.5%

54. Total Cement Consumption – Missouri
000 Metric Tons
No Stimulus
Stimulus
2008: -12.6%
2009: -11.9%
2010: -1.9% (+9.5%)
% ……….. =
Source: PCA

55. Long Term Cement Consumption
Thousands Metric Tons
Missouri
2007: 2.4 MMT to 2030: 3.7 MMT

56. Long Term Conclusions Cyclical downturn is temporary.
Growth rates extremely strong.
Demographics remain favorable.
Green building adds to consumption.
Residential alone could add 9MMT over demographics.
Consumption could approach 200MMT by 2035.

57. Cement & Construction Outlook
MCA Winter Conference
February 16, 2009
Dave Zwicke, PCA Regional Economist