1. Construction Spending, Labor & Materials Outlook AGC of California Board of Directors Half Moon Bay, CA, January 22, 2015 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

2. Construction spending & employment, 2006-14 2Source: BLS, Census Bureau construction spending reports2 12-month % change, Jan. 2006-Nov. 2014 11/14: $975 bil. 12-month % change, Jan. 2006-Nov. 2014 11/14: 6,109,000

3. Construction is growing, but unevenly 3 trends helping many sectors and regions: ‘Shale gale’—continuing despite 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 3Source: Author

4. One (or many) bright spot(s): the shale ‘gale’ 4Source: U.S. Energy Information Administration Haynesville Eagle Ford Bakken Marcellus Niobrara Permian

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 5Source: Author

6. U.S. ports affected by Panama Canal expansion 6Source: 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 7Source: Author

8. Private residential spending: MF still soaring, SF slowing 8 Private residential spending, Jan. 2011-November 2014 (billion $, SAAR) Multifamily (MF) Single family (SF) Improvements Improvements: -25% Single family: 13% Multifamily: 27% Total: -1% Source: Census Bureau construction spending reports 12-month % change, Jan. 2011-November 2014

9. Housing outlook SF: rising for now but tight credit, fear of lock-in, demographic shifts may limit increases MF: 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: down in ‘14 but should track SF sales 9Source: Author

10. 11/14 total (SAAR) 2014 vs. 2013 Jan-Nov YTD2015 forecast Nonresidential$617billion6 % 4-8% Power (incl. oil & gas structures, pipelines) 981410+ Highway and street 8630 to -5 Educational 7915 to -5 Commercial (retail, warehouse, farm) 60110 to 5 Manufacturing 591410+ Office 47185+ Transportation 42 42 to 5 Health care 38 -7 0 to -5 Sewage and waste disposal 243 Lodging 18 10+ Amusement & recreation 177 Other (communication; water; public safety; conservation; religious): 8% of total -2 Nonres segments: 2014 year-to-date & 2015 forecast Source: Census Bureau construction spending report; Author’s forecast

11. Construction spending: industrial, heavy (billion $, SAAR) 11Source: Census Bureau construction spending reports Power (89% private) Transportation facilities (72% public) Manufacturing (99% private) Public & private transportation facilities Latest 12-mo. change: -5% (private -4%; public -15%) Latest 12-mo. change: 5% Latest 12-mo. change: 21% Latest 12-mo. change: private 6%; public 5% Public Private

12. Construction spending: public works (billion $, SAAR) Source: Census Bureau construction spending reports Highways (99.7% public) Amusement & recreation (54% public) Sewage/waste (99% public) Water supply (96% public) Latest 12-mo. change: 6%Latest 12-mo. change: 14% Latest 12-mo. change: 5% Latest 12-mo. change: -2%

13. Total education (79% public) Construction spending: institutional (private + state/local) Source: Census Bureau construction spending reports Total healthcare (74% private) Education (state & local K-12, higher; private) Hospitals (private, state & local) Latest 12-mo. change: 3% Latest 12-mo. change: -8% Latest 12-mo. change: private -10%; state & local -6% S/L preK-12 Private S/L higher ed S/L Private Latest: state/local preK-12 0%, higher 8%; private 7%

14. Construction spending: developer-financed (billion $, SAAR) Source: Census Bureau construction spending reports Retail (private) Warehouse (private) Office (83% private) Lodging (private) Latest 12-mo. change: -1% Latest 12-mo. change: 58% Latest 12-mo. change: 11% Latest 12-mo. change: 15% (private 18%; public 2%) Private Public Total

15. 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

16. -2% 9% 1% 6% 4% -2% -1% 5% -4% 5% 1% 16% 0.5% -5% 2% 8% 3% 5% -0.1% 4% 7% 6% 4% 3% -4% -8% 6% -1% 1% 3% 1% 5% 2% 9% 2% -11% 8% 10% HI -2% 1% VT 2% CT 3% RI 4% DE 4% NJ -5% MD 1% DC 6% NH 1% Over -10%-5.1% to -10%-0.1% to -5%0.1% to 5% MA 2% State construction employment change (U.S.: 3.6%) 11/13 to 11/14: 38 states + DC up, 12 down 5.1% to 10%Over 10% Shading based on unrounded numbers 0% Source: BLS state and regional employment report 7%

18. Construction Employment in United States, 1/90-11/14 (seasonally adjusted; shading = recessions) Construction Employment in California, 1/90-11/14 (seasonally adjusted; shading = recessions) Source: BLS Peak: Apr. ‘06 -21% vs. peak Peak: Feb. ‘06 -27% vs. peak

19. Construction employment change from one year earlier 1/08-11/14, seasonally adjusted Employment change for CA construction segments 1/08-11/14, not seasonally adjusted Source: BLS

20. 13 11 Construction employment change by CA metro, 11/13-11/14 20 Over -10% -5.1% to -10% -0.1% to -5% 0.1% to 5% 5.1% to 10% Over 10% Shading based on unrounded numbers 0% Source: BLS state and regional employment report 6 1 27 16 15 3 28 26 12 8 7 10 2 4 5 9 14 25 22 17 18 19 20 21 23 24 Metro area or division % change Rank (out of 339) 1San Diego-Carlsbad-San Marcos6%108 2El Centro16%5 3Santa Ana-Anaheim-Irvine Div.10%42 4Riverside-San Bernardino-Ontario-2%288 5Los Angeles-Long Beach-Glendale Div.5%125 6Oxnard-Thousand Oaks-Ventura5%125 7Santa Barbara-Santa Maria-Goleta-1%277 8Bakersfield-Delano10%42 9San Luis Obispo-Paso Robles5%125 10Salinas2%198 11Hanford-Corcoran0%225 12Visalia-Porterville-2%288 13Fresno11%31 14Madera-Chowchilla0%225 15Merced6%108 16Modesto11%31 17San Jose-Sunnyvale-Santa Clara2%198 18Santa Cruz-Watsonville0%225 19Stockton5%125 20Oakland-Fremont-Hayward Div.8%71 21San Francisco-San Mateo-Redwood City Div.8%71 22Santa Rosa-Petaluma5%125 23Napa3%171 24Vallejo-Fairfield7%90 25Sacramento--Arden-Arcade--Roseville10%42 26Yuba City7%90 27Chico-10%332 28Redding8%71

21. Change in construction (un)employment, 12/10-12/14 Construction unemployment fell sharply in past 4 years But industry employment rose much less Thus, workers left for other sectors, school, retirement Source: Author, from BLS Unemployment rates (Not seasonally adjusted, Dec. 2010-Dec. 2014) Change in unemployment & employment (Not seasonally adjusted, Dec. 2010-Dec. 2014) 369,000 Workers who have left industry

22. 12-month change in construction employment and unemployment, Jan. 2011-2014 (not seas. adjusted) Unemployment decrease Employment gain/loss(-)

23. Hardest positions to fill (% of respondents who are having trouble filling) 23 Source: AGC Member Survey, Sept. 2014 Craft 83% Carpenters66 Roofers64 Equipment operators59 Plumbers54 Electricians52 Professional 61% Project managers/supervisors48 Estimators32

24. Construction prices, materials costs, average hourly earnings (AHE) Source: Bureau of Labor Statistics: PPI, AHE; Federal Highway Administration: National Highway Construction Cost Index 24

25. Producer price indexes for key inputs, 12/10-11/14 (Dec. 2010=100) Source: Author, based on BLS producer price index reports Steel mill products Gypsum products Copper & brass mill shapes Lumber & plywood Latest 1-mo. change: -0.3%, 12-mo.: 2% Latest 1-mo. change: 0.3%, 12-mo.: 11% Latest 1-mo. change: 0.03%, 12-mo.: -3% Latest 1-mo. change: -1.0%, 12-mo.: 4% 12/10

26. Producer price indexes for key inputs, 12/10-11/14 (Dec. 2010=100) Source: Author, based on BLS producer price index reports Plastic construction products Concrete products Asphalt paving mixtures & blocks Latest 1-mo. change: -4.2%, 12-mo.: -11% Latest 1-mo. change: -0.1%, 12-mo.: 2% Latest 1-mo. change: 0.7%, 12-mo.: 4% Latest 1-mo. change: 0.0%, 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/lodging 26%Manufacturing 25%Private office 24%Water/sewer; also Energy 20%Hospital 17%Power 16%Highway 15%Higher education 13% Other transportation 8%K-12 school 5% Public building -6% Marine construction -16% Direct federal construction 27Source: AGC Construction Outlook Survey, Jan. 2015 (912 total responses)

28. Trends: 2015-2017 Total construction spending: +6% to +10% per year – less SF housing, retail; flat public spending – new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults Materials costs: 0 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 28Source: Author

29. Summary for 2013, 2014-17 29Source: 2013-14: Census, BLS; 2014-17: Author’s ests. 2013 actual 2014 actual (a) or forecast 2015-17 annual average forecast Total spending6%5-7% 6-10% Private – residential20%5-7% 1-10% – nonresidential1%10-13% 1-10% Public-3%-1 to +2% near 0 Materials PPI1.3%-0.9% (a) 0-3%; rare spikes Employment cost index2.0%2-2.5% 2.5-5%

30. AGC economic resources (email simonsonk@agc.org)simonsonk@agc.org The Data DIGest: weekly 1-page email (subscribe at www.agc.org/datadigest)www.agc.org/datadigest monthly press releases: spending; PPI; national, state, metro employment state and metro data, fact sheets website: http://www.agc.org/Economics http://www.agc.org/Economics webinars, surveys 30