1. Construction Spending, Labor & Materials Outlook AGC Austin Chapter July 21, 2015 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

2. Construction spending & employment, 2006-15 Source: BLS, Census Bureau construction spending reports Spending change from March 2006Employment change from April 2006 7.7 million 6.4 mil. (-17%) $1.2 trillion

3. Construction is growing, but unevenly 3 trends helping many sectors and regions: ‘Shale gale’—mainly downstream after oil price plunge Panama Canal expansion Residential revival, especially multifamily 3 trends holding down construction growth: Government spends less on schools, infrastructure Consumers switch from stores to online buying Employers shrink office space per employee Source: Author

4. F Shale plays in lower-48 states Current play – oldest stacked play Current play – intermediate depth/ age stacked play Current play – shallowest/ youngest stacked play Prospective play Basin F Source: U.S. Energy Information Administration, based on data from various published studies

5. Shale’s direct and indirect impacts on construction Onsite: Each well requires access road, site prep, pad, storage pond, support structures, pipes Nearby: Products, water require trucking, rail, pipeline, processing Local spending by drilling firms, workers, royalty holders Upstream: orders for fracking sand, rigs, compressors, pumps, pipe, tanks, trucks, railcars, processing facilities Downstream: Petrochemical, power, steel plants; LNG export terminals, fueling stations; NG-powered vehicles Losers: coal; maybe wind, solar, nuclear & their suppliers Source: Author

6. U.S. ports affected by Panama Canal expansion Source: U.S. Army Corps of Engineers Baltimore NY-NJ Norfolk Seattle & Tacoma Charleston San Diego Oakland Miami Savannah Jacksonville Mobile Columbia River at Mouth, OR & WA Los Angeles/ Long Beach New Orleans Houston

7. Panama Canal expansion’s impacts on construction Ports: investing in dredging, piers, cranes, land access Nearby: Storage, warehouse, trucking, rail facilities Bridge, tunnel, highway improvements Inland: possible changes in distribution, manufacturing Source: Author

8. Private residential spending, Jan. 2011-May 2015 (billion $, SAAR) 12-month % change, Jan. 2011-May 2015 Residential spending: MF, SF gains offset weak improvements Multifamily (MF) Single family (SF) Improvements Improvements: -3% Single family: 11% Multifamily: 21% Total: 8% Source: Census Bureau construction spending reports

9. 2015 residential spending forecast: 1-14% SF: +5 to +10%; rising for now but tight credit, fear of lock-in, demographic shifts may limit increases MF: +10 to +20%; upturn should last through 2015 – Vacancy rates near multi-year lows in most cities – Preference for urban living adds to demand – Condos have been slower to revive than rentals – Government-subsidized market remains weak Improvements: -10 to +10%; reported 2014-15 decline is not credible; should track SF sales Source: Author

10. -0.1% 1.3% 1.1% 1.0% 1.3% 0.9% 0.2% 1.7% 1.5% 1.6% -0.1% 2.2% 0.9% 0.7% 0.3% 0.6% 1.7% 0.6% 0.5% 0.3% 0.4% 0.3% -0.1% 0.1% 0.4% 0.3% 0.1% 0.3% 0.2% 0.3% 0.05% 0.7% 1.0% 1.5% 0.1% -0.2% 0.3% 1.4% HI 0.8% 1.3% VT -0.05% CT -0.1% RI 0.2% DE 1.1% NJ 0.3% MD 0.6% DC 1.5% NH 0.3% decrease0-0.49%0.5-0.99%1.0-1.49% MA 0.5% Population change by state, July 2013-July 2014 (U.S.: 0.75%) 1.5%+ Source: U.S. Census Bureau News 0.8%

11. 2014 total Jan.-May YTD 2015 vs. 20142015 forecast Nonresidential$618billion6 % 6-9% Power (incl. oil & gas structures, pipelines) 101-27-10 to 0 Highway and street 84 -0.4 -5 to 0 Educational 8020 to 5 Commercial (retail, warehouse, farm) 63145 to 10 Manufacturing 585515 to 30 Office 462110 to 15 Transportation 42 95 to 10 Health care 3820 to 5 Sewage and waste disposal 2317 Amusement & recreation 1725 Lodging 162210 to 20 Other (communication; water; public safety; conservation; religious): 8% of total Nonresidential segments: 2014 total & 2015 forecast Source: Census Bureau construction spending report; Author’s forecast

12. Power (90% private)Manufacturing (99% private) Construction spending: industrial, heavy (billion $, SAAR) Source: Census Bureau construction spending reports Transportation facilities (70% public)Public & private transportation facilities Latest 12-mo. change: 5% Latest 12-mo. change: private 2%; public 13% Public Private Latest 12-mo. change: -23% (oil & gas -6%; electric -30%) Electric Oil & Gas Total Latest 12-mo. change: 70% (other 21%; chemical 158%) Other Chemical Total

13. Construction spending: public works (billion $, SAAR) Source: Census Bureau construction spending reports Highways (99.4% public) Amusement & recreation (52% public) Sewage/waste (99% public) Water supply (96% public) Latest 12-mo. change: 2%Latest 12-mo. change: 13% Latest 12-mo. change: 30% Latest 12-mo. change: -7%

14. Total education (80% public) Construction spending: institutional (private + state/local) Source: Census Bureau construction spending reports Total healthcare (77% private) Education (state & local K-12, higher; private) Hospitals (private, state & local) Latest 12-mo. change: 2% Latest 12-mo. change: 3% Latest 12-mo. change: private 11%; state & local -0.3% S/L preK-12 Private S/L higher ed S/L Private Latest: state/local preK-12 -5%, higher 18%; private -4%

15. Construction spending: developer-financed (billion $, SAAR) Source: Census Bureau construction spending reports Retail (private) Warehouse (private) Office (84% private) Lodging (private) Latest 12-mo. change: 13% Latest 12-mo. change: 22% Latest 12-mo. change: 30% Latest 12-mo. change: 25% (private 27%; public 14%) Private Public Total

16. Seattle Major locations for data centers Portland Silicon Valley Southern California Las Vegas Phoenix Salt Lake City Denver Colorado Springs Dallas Houston Kansas City Omaha Minneapolis Des Moines Chicago St. Louis Atlanta Northern Florida Northern Virginia Boston Philadelphia Northern New Jersey Source: www.DataCenterKnowledge.com, from CBRE, ASHRAE

17. CT 5% 6% 12% 1% 7% 12% 5% -2% 8% 2% 8% -2% 5% 4% -1% 3% 0.5% 6% 3% -1% 4% 7% 10% -0.1% 4% -7% 2% -2% 4% 6% 4% 2% 7% -3% -12% 6% 4% HI 2% 5% VT 3% MD 5% DC 4% NH 6% Over -10%-5.1% to -10%-0.1% to -5%0.1% to 5% MA 4% State construction employment change (U.S.: 4.5%) 5/14 to 5/15: 40 states up + DC, 10 down 5.1% to 10%Over 10% Shading based on unrounded numbers 0% Source: BLS state and regional employment report 5% NJ 8% DE 1% RI -5% 9%

18. Construction Employment in United States, 1/90-5/15 (seasonally adjusted; shading = recessions) Construction Employment in Texas, 1/90-5/15 (seasonally adjusted; shading = recessions) Source: BLS Peak: Apr. ‘06 -17% vs. peak Peak: Apr. ‘08 -2% vs. peak

19. Texas 3% (31 out of 51) U.S. 5% Construction Employment Change from Year Ago 1/08-5/15 (seasonally adjusted) Austin-Round Rock 3% (139 out of 339) Source: BLS

20. Over -10% -5.1% to -10% -0.1% to -5% 0.1% to 5% Construction employment change by TX metro, 5/14-5/15 5.1% to 10% Over 10% Shading based on unrounded numbers 0% Source: BLS state and regional employment report El Paso Amarillo Lubbock Odessa San Angelo Mid land Abilene Wichita Falls Brownsville-Harlingen McAllen-Edinburg-Mission Laredo San Antonio- New Braunfels Austin- Round Rock- Killeen- Temple Waco Corpus Christi Victoria Houston-The Woodlands- Sugar Land Beaumont- Port Arthur College Station- Bryan Longview Tyler Sherman- Denison Dallas- Plano- Irving Div. Fort Worth- Arlington Div. Texarkana, TX-AR

21. Change in construction employment, 5/14-5/15 not seasonally adjusted (NSA) Metro area or division 12-mo. empl. change (NSA) Rank (out of 339)Metro area or division 12-mo. empl. change (NSA) Rank (out of 339) Statewide (Construction only)3%Laredo*2%162 Statewide* (Const/mining/logging) 1% Longview*3%139 Abilene*-2%266Lubbock*-3%285 Amarillo*3%139McAllen-Edinburg-Mission*1%184 Austin-Round Rock*3%139Midland*5%98 Beaumont-Port Arthur*17%8Odessa*3%139 Brownsville-Harlingen*3%139San Angelo*5%98 College Station-Bryan*1%184San Antonio-New Braunfels12%25 Corpus Christi*7%67Sherman-Denison*-7%336 Dallas-Plano-Irving Div.*3%139Texarkana, TX-AR*0%206 El Paso*-9%345Tyler*5%98 Fort Worth-Arlington Div.*0%205Victoria*2%162 Houston-The Woodlands-Sugar Land 1%184Waco*3%139 Killeen-Temple*6%83Wichita Falls*0%206 *The Bureau of Labor Statistics reports employment for construction, mining and logging combined for metro areas in which mining and logging have few employers. To allow comparisons between states and their metros, the table shows combined employment change for these metros. Not seasonally adjusted statewide data is shown for both construction-only and combined employment change. Source: AGC rankings, calculated from BLS state and area employment reports

22. Construction wages as a % of private sector average, 1990-2014 Source: AGC of America, from www.bls.gov/ces 22

23. Unemployed construction workers, June 2000-June 2015 (not seasonally adjusted) Source: BLS

24. Hardest positions to fill (% of respondents who are having trouble filling) 24 Source: AGC Member Survey, Sept. 2014 Craft 83% Carpenters66 Roofers64 Equipment operators59 Plumbers54 Electricians52 Professional 61% Project managers/supervisors48 Estimators32

25. Steel pipe and tube Producer price indexes for key inputs, 12/10-6/15 (Dec. 2010=100) Source: Author, based on BLS producer price index reports Steel mill productsCopper & brass mill shapes Aluminum mill shapes Latest 1-mo. change: -1.0%, 12-mo.: -12% Latest 1-mo. change: -1.1%, 12-mo.: -11% Latest 1-mo. change: -2.2%, 12-mo.: -4% Latest 1-mo. change: -3.4%, 12-mo.: -2% 12/10

26. Producer price indexes for key inputs, 12/10-6/15 (Dec. 2010=100) Source: Author, based on BLS producer price index reports Plastic construction products Concrete products Architectural coatings Latest 1-mo. change: -1.8%, 12-mo.: -35% Latest 1-mo. change: 0.2%, 12-mo.: 2% Latest 1-mo. change: -0.2%, 12-mo.: 4% Latest 1-mo. change: -0.1%, 12-mo.: -2% Diesel fuel 12/10

27. AGC members’ expectations for 2015 Net % who expect dollar volume of projects to be higher 33%Retail/warehouse/lodging15%Higher education 26%Manufacturing13%Other transportation 25%Private office8%K-12 school 24%Water/sewer5%Public building 24%Energy-6%Marine construction 20%Hospital-16%Direct federal construction 17%Power 16%Highway Source: AGC Construction Outlook Survey, Jan. 2015 (912 total responses)

28. Trends: 2015-2017 Total construction spending: +6% to +10% per year – weak SF housing, retail; flat public spending – new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults Materials costs: -1 to +3% (similar to CPI); rare spikes Labor costs: +2.5% to + 5% Labor supply: widespread shortages possible due to retirements, competition from other sectors, fewer vets Source: Author

29. Summary for 2014, 2015-17 forecast Source: 2013-14: Census, BLS; 2014-17: Author’s ests. 2014 actual Jan.-May YTD ‘15 vs. ‘14 2015-17 annual average forecast Total spending5%6% 6-10% Private – residential4%6% 1-10% – nonresidential11%8% 1-10% Public2%3% near 0 Materials PPI-0.9%(May) -3% 0-3%; rare spikes Employment cost index1.8%(Q1) 1.8% 3-5%

30. AGC economic resources (email simonsonk@agc.org)simonsonk@agc.org The Data DIGest: weekly 1-page email (subscribe at http://store.agc.org)http://store.agc.org monthly press releases: spending; PPI; national, state, metro employment state and metro data, fact sheets: www.agc.org/learn/construction-data www.agc.org/learn/construction-data Webinars, custom presentations