1. Ed Sullivan, Chief Economist PCA
Cement Outlook: 2008
Ed Sullivan, Chief Economist PCA
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, write downs are threatening some banks solvency,, oil prices are above $120 per barrell, $4 gas is coming….and yet….

2. Introduction: Overview
The economy is weak….recession…and it may not be mild.
December beginning
Fiscal & Policy actions will not avert a recession.
Timing lags
Fiscal Policy not have as strong an impact on GDP as expected.
Debt, Energy, Adverse Momentum.
Lending aversion toward risk is spreading
Mortgage here
Consumer and Commercial impacts begins to emerge.
Job losses compound economic adversities.
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, write downs are threatening some banks solvency, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, oil prices are above $120 per barrell, $4 gas is coming….and yet….

3. Key Questions
How deep will retrenchment go ?
How long will it last ?

4. Portland Cement Consumption
Declines Continue Through 2009. =
Peak (2005)-to-Trough (2009) Decline:
30 MMT (Worst in History)
(On a Percentage Basis: Equal to Recession)

5. Capacity Expansion Thousand Metric Tons Stated Capacity Expansions
Potential Increases From Specification Changes

6. Conclusion Double-digit decline in consumption with trough in 2009.
Large capacity increases magnify potential market imbalances.
Imports record large, sustained declines.
Global conditions suggest high freight rates continue.
2008: Bears most of the burden of correcting market imbalances.
Utilization Rates decline.
Materializes to a greater extent in 2009.
Days Supply Inventory remains above historical average.
Most pressure materialize in 2009.
Past Peak (2005) not realized until 2014

7. Recession is Here, and its not going to be Mild
Economic Outlook
Recession is Here, and its not going to be Mild

8. Introduction
To determine the cause of a slowdown in economic Growth, or even a recession ….
…. Look no further than the excesses and imbalances created during the preceding boom period.
Debt played important role in growth.
Responsible debt?
Easy terms & standards
Unprecedented link in consumer spending to housing wealth.
Payback is tough – maybe more than consensus of economists believe.

9. Sub-Prime Mortgage Resets
Total Loans Scheduled for Reset
Period of Emerging Trouble

10. Recession: Construction Declines May not be Short or Shallow.
2006
Foreign Capital Inflows
2007
Housing
2008
Consumer
2009
Commercial
Public
Energy

11. Net Job Creation Monthly Change in Total Non-Farm Employment, BLS
Economy has Shed 240,000 Jobs in Last Three Months…AND…The Recession has Just Begun.

12. Net Job Creation: Alabama
Monthly Change in Total Non-Farm Employment, BLS
Alabama Created 29,100 jobs in It has Shed 5,000 Jobs in 2008.
PCA Expects Alabama Will Shed 14,000 Jobs in 2008.

13. Monetary Policy Timing Lags
Percent Change, GDP Growth Rate, Inflation
Change in Real GDP Growth Rate
Change in CPIU Inflation Rate
Peak Economic Stimulus Occurs 8-9 Months After Cut

14. Fiscal Policy Impacts Per Month
Percent Change, GDP Growth Rate
Tax Rebate Planned Impact
Tax Rebate Impact With PCA Debt Reduction Assessment

15. Unleaded Gasoline Prices
Cents Per Gallon, Department of Energy
At $4.10 Per Gallon, Wipes Out $170 Billion Fiscal Stimulus.
Every 10 Cent Increase at the Pump Takes $15 Billion Out of Consumer’s Pockets on an Annualized Basis
Since January 1st, Gasoline Prices have increased 35 cents = Equating to a $50 Billion Annualized Draw on Consumer Spending.

16. Economic Growth Outlook
Percent Change, GDP Growth Rate
Tax Rebate Bump
Hard to Sell Businessmen that Recession is “technically” over in 3rd Quarter – Distress Continues Into 2009.

17. Alabama Construction
Composition

18. Alabama: Composition of Construction
Residential: 35 %
Nonresidential: 18%
Retail: 50%
Agriculture: 20%
Office: 10%
Energy/Industrial/Hotel
Public: 47%
Highway & Streets: 45%
Public Buildings: 15%
Other Public: 40%
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, write downs are threatening some banks solvency, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, oil prices are above $120 per barrell, $4 gas is coming….and yet….

19. Residential Outlook
Recovery Delayed

20. Home Inventory Thousands of Homes for Sale, December
New
New
New
New
New
New
Existing
Existing
Existing
Existing
Existing
Existing
Existing Homes Account for 87% of Total Home Inventory

21. Single Family Price Trend: Existing Homes Compared to Year Ago Levels
Percent Change, Year Ago (%)
Projected
High Inventories Will Depress Prices Throughout 2008.

22. Alabama: Single Family Prices
Single Family Median Price

23. Lenders Reporting Tighter Lending Standards: Mortgages
Percent Reporting Tighter Lending Standards
Tighter Credit Will Undermine Sales Recovery
Easy Credit Period =
Sub-Prime Lending Has disappeared.

24. Alabama: Single Family Outlook
Single Family Permits
23% Decline in 2007, Similar Decline in Moderate Decline 1st half Recovery 2nd half
Residential Accounts for more than 1/3 of Alabama cement consumption. The Decline anticipated for 2008 translates into 5% to 6% decline in total market volume.

25. Nonresidential Outlook
Declines in 2008 and 2009

26. Nonresidential Construction
Nonresidential Strength
Strong Expected ROI Fostered by Strong Economic Growth
Pent-up Demand
Easy Credit Conditions
Nonresidential Softening
Expected ROI Softens With Overall Economic Slowdown
Credit Conditions Tighten
Risks and Uncertainty Grow

27. Retail Job Creation: Alabama
Monthly Change in Total Non-Farm Employment, BLS
Alabama Created 6,300 retail jobs in It has Shed 1,500 Jobs in 2008.

28. Lenders Reporting Tighter Lending Standards: Commercial
Percent Reporting Tighter Lending Standards
Medium to Large Firms
Easy Credit Period =
Small Firms
Sub-Prime Has Spilled into Commercial Credit Markets

29. Business Confidence Has Been Shaken
Percent of Firms Reporting a Positive Business Outlook, NAM Survey
Alabama Business Leaders Confidence Index has declined 23% during past year.
Bullish Business Attitudes =

30. Slower Growth in 2008, Problems Looming Ahead
Public Outlook
Slower Growth in 2008, Problems Looming Ahead

31. States With Projected Budget Shortfalls
District of Columbia
2009 Shortfall
2010 Shortfall
No Shortfall

32. Medicaid Pressures Build
Billions of $
Blue/Solid: Total Medicaid Spending
Red/Striped: State Medicaid Spending
34%
30%
21.5% of Total State Expenditures
25%
2032: State Medicaid Spending Exceeds One Trillion $

33. Will Medicaid “Crowd Out” Highway Spending?
Billions of Real State Spending Targeting Transportation
Transportation Spending: Constant 8% Share of Budget
Transportation Spending: Share Reduced to 7% of Budget
Transportation Spending: Share Reduced to 5% of Budget
Gasoline Tax Increases Must Be Viewed in the Context of Future Fiscal Pressures Facing States

34. Correction is Temporary
Conclusion
Correction is Temporary

35. Market Imbalances - Changes in Cement Consumption Tons + Capacity Expansion Tons=

36. Market Imbalances: After Import Reductions - Changes in Cement Consumption Tons + Capacity Expansion Tons =
2009 !

37. Conclusion Double-digit decline in consumption with trough in 2009.
Large capacity increases magnify potential market imbalances.
Imports record large, sustained declines.
Global conditions suggest high freight rates continue.
2008: Bears most of the burden of correcting market imbalances.
Utilization Rates decline.
Materializes to a greater extent in 2009.
Days Supply Inventory remains above historical average.
Most pressure materialize in 2009.
Past Peak (2005) not realized until 2014

38. Take a Step Back
Longer Term Outlook

39. Take a Step Back
Cyclical correction is temporary.

40. Ed Sullivan, Chief Economist PCA
Cement Outlook: 2008
Ed Sullivan, Chief Economist PCA
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, write downs are threatening some banks solvency,, oil prices are above $120 per barrell, $4 gas is coming….and yet….