1. Good NewsThe Recession Is Over! (but not for construction) The Houston Economics Club April 15, 2009 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org

2. Current economic influences Credit market freeze affecting private, state and local borrowers Weak demand for income-producing properties Falling state spending No job growth, rising unemployment Stimulus (details: www.agc.org/stimulus) Source: Author 2

3. Economic Stimulus Package Total of $787 billion in spending and tax cuts $308 billion in appropriated spending $269 billion in direct spending (refundable portion of tax credits, unemployment benefits, Medicaid reimbursement to states, etc.) $211 billion in tax cuts Source: Author 3

4. Economic Stimulus Package Source: Author 4 $49 billion up to $38 billion $30 billion $21 billion

5. Stimulus tax provisions affecting construction 1-year delay (to 2012) in 3% withholding on gov. contracts Increased expensing Net operating loss: 5 year carryback of NOL for small business (<$15 mil. in gross receipts) Qualified school construction bonds Build America bonds Bonds for recovery zones, tribal areas, renewable energy, energy conservation Modified renewable energy, conservation credits Source: Author 5

6. Stimulus timing, strings Timing – highways States must obligate ½ of their total by June 30 States must obligate remainder by Feb. 17, 2010 Timing – other construction: language varies Conditions Davis-Bacon Buy American No E-Verify requirement or broad-based FAR No project labor agreement mandate, but… Source: Author 6

7. The shifting construction market (construction spending, seasonally adjusted annual rate) Source: Census Bureau 7 (-0.2%) (-30%) (+3%)

8. vs. 1/09vs. 2/08 +1%-51% +82%-41% vs. 1/09vs. 2/08 +11%-42% -11%-48% Single-family (SF) vs. multifamily (MF) vs. 1/09vs. 2/08 -11%-48% +2%-7% -2%-11%

9. Housing outlook SF: No relief yet for decline in permits, starts or spending, but sales could pick up by mid-09 Starts wont improve until late-09 at best MF: Rental construction cushioned the fall in condo starts but now many owners are trying to rent out houses and condos Foreclosures will add to inventories, drag down both sales and rentals 9 Source: Author

10. 10 Nonres totals, share, 1- & 12-month change 2/09 TotalSharevs. 1/09vs. 2/08 Nonresidential total$685billion100%+1%+1% Educational10515 + 1 + 7 Manufacturing8212 + 4 + 63 Highway and street7811 - 1 + 3 Commercial7010 - 2 - 22 Power6810 - 3 + 6 Office6610 + 1 - 6 Health care477 + 2 + 5 Transportation335 + 1 - 3 Lodging325 + 5 - 5 Sewage and waste disposal254 + 2 - 1 Amusement and recreation213 + 3 - 11 Other (communication; water; public safety; relig.; conservation): 9% of total 10Source: Census Bureau

11. Public construction (seas. adj. annual rate) 2/09 Total $302 billion State/Local $276 billion Federal $26 billion Educational8785 2 Highway and street7877 1 Sewage and waste disposal24 Transportation2321 2 Water supply1514 Office1611 5 Public safety139 4 Amusement and recreation11 Power98 1 Other (health care; residential; conservation; commercial): $25 billion 11 Source: Census Bureau

12. Spending outlook for 2009 Actual 2008 Forecast 2009 Residential- 27%- 2 to +2% Nonresidential+11%- 3 to - 9% Total- 6%- 1 to - 7% 12 Source: Census (2008); Author (2009)

13. Materials and components Higher increases for construction inputs than for overall economy Cumulative change double the CPI since 12/03: Const PPI: 31% CPI-U: 15% Producer price index drivers: steel, gypsum, diesel, asphalt, concrete, copper, plastics, aluminum, wood 13 Source: BLS (CPI, PPI)

14. Change in Producer Prices for Construction vs. Consumer Prices, 2003 - 2009 (December 2003 = 100) Source: BLS (CPI, PPI) 14 Mar. 2009

15. Producer Price Indexes, 2007 - 2009 Inputs to construction industries Highway & street construction Nonresidential buildingsOther heavy construction 1-month: -0.6% 12-month: -1.9% 1-month: -0.9% 12-month: -7.0% 1-month: -0.8% 12-month: -5.8% 1-month: -0.6% 12-month: -2.6%

16. Producer Price Indexes, 2007 - 2009 No. 2 Diesel FuelSteel Mill Products Concrete ProductsAsphalt Paving Mixtures & Blocks 1-month: -8.9% 12-month: -62.5% 1-month: -0.1% 12-month: -14.6% 1-month: -1.9% 12-month: 17.4% 1-month: -0.9% 12-month: 3.6%

17. Producer Price Indexes, 2007 - 2009 Copper & Brass Mill Shapes Aluminum Mill Shapes Lumber and PlywoodGypsum Products 1-month: -0.8% 12-month: -37.0% 1-month: -2.9% 12-month: -22.3% 1-month: 0.0% 12-month: 9.0% 1-month: -2.5% 12-month: -9.6%

18. Outlook for materials in 09 compared to 08 Lower average prices: diesel, asphalt, steel Possible increases: concrete, gypsum, copper, wood products Year-over-year PPI change: -4% to 0% 18 Source: Authors forecasts

19. Outlook for materials (beyond 2009) 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 6 to 8% PPI increases, higher spikes 19 Source: Authors forecast

20. Construction jobs fall, but wages rise (seasonally adjusted) 20

21. AK -1% WA -11% OR -17% CA -19% ID -14% MT -14% WY -4% NV -18% AZ -27% CO -12% NM -9% ND -0.5% SD -5% NE -1% KS -6% OK +1% TX -6% MN -16% IA -3% MO -7% LA +8% WI -11% IL -11% MI -10% IN -10% KY -15% TN -16% MS -7% AL -15% OH -14% NY -5% PA -6% VA - -14% NC -17% SC - -9% GA -13% FL -21% ME -9% WV -4% AR +1% UT -16% NH -15% VT -22% CT -19% RI -16% MA -12% DE -13% NJ -12% MD -13% HI -10% State Construction Employment 2/08 to 2/09 (U.S. -11.1%) 0.5 to 8.2% -11.0 to 0% -11.6 to -26.8% DC -5%

22. 22 Summary for 2009 Nonres spending: -3 to -9% Res: -2 to +2% (SF up in 2d half, MF down all year) Total construction spending: -1% to -7% Materials costs: -4% to 0% Labor costs: +3% to +4% 22

23. AGC economic resources (sign up by email to simonsonk@agc.org) The Data DIGest: weekly one-page email PPI tables: emailed monthly State-specific stimulus estimates and fact sheets: www.agc.org/stimulus Webinars/audioconferences Member emails on stimulus jobs, credit market 23

24. Ken Simonson Chief Economist Associated General Contractors of America simonsonk@agc.org, 703-837-5313 www.agc.org