1. Building Materials and Labor Cost Outlook
Amy Carneal
Economist, Industry Practice
January 2003

2. But why were costs restrained during the housing boom?
Building Environment
Material costs were up just 1% during the past year
Construction wage growth slowed
But why were costs restrained during the housing boom?
Nonresidential construction declined
Material producers expanded capacity

3. Building Costs Are Tame

4. Nonresidential Construction Weakened

5. Lumber 2003 will be another tough year for U.S. producers
Tariffs are not helping domestic sawmills
Canadian exports remain at high levels
Non-Canadian imports continue to grow
Market fundamentals will not improve in 2003
Housing starts look to weaken
Output must be scaled back to avoid a price correction

6. Canadian Imports Slip Back to Comfortable Levels After Soaring During Duty-Free Window

7. Fundamentals Suggest Soft Lumber Prices This Year

8. Cement
Shipments fell in the second half of 2002 and will continue to slip in 2003
Significant capacity expansion allowed producers to grab back some domestic market share
Production must be cut by closing older plants
Leading to modest price escalation [again] this year

9. Cement Utilization Rates Slip As Capacity Continues to Expand

10. Cement Imports Are Falling Off, Along With Shipments

11. Gypsum Wallboard Wallboard producers faired well in 2002
However, sales growth will slow throughout this year
Robust capacity growth raises potential of a price correction
Excess supply has already begun to soften prices
Boardmakers must respond by cutting production
Price escalation is expected to slow in 2003

12. Sluggish Wallboard Sales Growth Causes Slump in Prices

13. Rapid Capacity Expansion Could Spell Problems for Wallboard Producers

14. Labor Costs
Construction employment slipped in 2002 for the first time in a decade
Sector unemployment rate hovered around 9-10%
Resulting in slower wage growth for laborers last year
Further deterioration in labor market fundamentals is expected
Global Insight expects even slower wage escalation in 2003