national forecast and construction
DESCRIPTION
TRANSCRIPT
Construction & Materials Outlook
WSU Economic Outlook Conference
Wichita, October 7, 2010
Ken Simonson, Chief Economist
AGC of America
Current economic influences on construction
• GDP, personal income: steady but modest gains
• No upturn in office, retail, warehouse rent/occupancy
• Loans for developers remain tight-to-unavailable
• State/local tax shortfalls deeper spending cuts
• Stimulus (details: www.agc.org/stimulus)
Source: Author 2
Construction-related stimulus funding (~$135 bil.)
$0
$10
$20
$30
$40
$50
$28 Highway
$7 DOD
$11 electric grid
($4.4 “smart grid”)
$6 waste cleanup
$18 transit/rail($8 “high-speed”)
$6 GSA
$7 wireless/broadband $7 water/
wastewater
$2 airports, ports
$6 other federal
$6 energy grants
$5 Corps
$8 housing
$5 weatheriza-tion
$0 to $9 discre-tionary
Bil
lio
n $
$49 billion
up to $35 billion
$30 billion
$21 billion
3Source: Author
Stimulus timing, strings
• Timing – road $ spent fast; other $ delayed due to:
• New programs had to be designed
• Agencies didn’t have enough personnel
• Buy American terms stopped use of funds
• Other factors
• Davis-Bacon
• Reporting requirements: jobs, executives’ pay
4Source: Author
’09-’10 stimulus tax changes affecting:
- contractors’ cash flow
• 5-year carryback of ’08, ‘09 net operating losses
• 6.2% payroll tax credit for workers hired 3/18-12/31/10
- demand for construction
• Build America bonds: cheaper financing; more projects?
• $8000 homebuyer tax credit: mixed impact
5Source: Author
Economic impact of nonresidential construction
• Jobs: 28,500 per $1 billion
• 1/3 direct, onsite construction
• 1/6 indirect (quarries, mfg., services)
• 1/2 “induced” by spending from higher earnings of construction, indirect workers and owners
• GDP: $3.4 billion
• Personal Earnings: $1.1 billion
Source: Prof. Stephen Fuller, George Mason University 6
1 2 3 4 5 6 7 8 9 10
11
12
450000
550000
650000
750000
850000
950000
1050000
1150000
150000.000
250000.000
350000.000
450000.000
550000.000
650000.000
750000.000
850000.000
(Bill
ion
$, S
AA
R)
1,150
1,050
950
850
450
350
250
150
Construction spending, level and 12-month changeSeasonally adjusted annual rate (SAAR), 2008-August 2010
▬ Private Nonresidential ($260 billion, -24%)
▬ Public ($314 billion, -1%)
▬ Private Residential ($238 billion, -2%)
▬ Total Construction ($812 billion, -10%)
7Source: Census Bureau construction spending reports
2008
2009
2010
0
200,000
400,000
600,000
800,000Building permits and starts (2008-August 2010)
Single- vs. multi-family, 2008-10, seasonally adjusted annual rate (SAAR)
2008
2009
2010
$0
$80,000
$160,000
$240,000Construction spending (2008-August 2010)
12-month
▬ Single-family 4%
▬ Improvements 4%
▬ Multi-family -52%
Permits 12-month
▬ Single-family -17%
▬ Multi-family 31%
Starts
-- Single-family -9%
-- Multi-family 55%
8Source: Census Bureau construction spending, housing starts reports
Housing outlook
• SF: starts, permits should rise in rest of ’10 & ’11• MF: Close to bottom; no big gains likely until ’11
- Rental demand should rise as impacts fade from renters losing jobs or using first-time homebuyer credit
- Supply swelled by owners and banks who are trying to rent out houses and condos
- Banks remain unwilling to lend to developers
9Source: Author
Nonres totals (billion $, SAAR), share & 12-month change
8/10 Total Share 12-month
Nonresidential $563 billion 100 % - 14%
Educational 87 15 - 14
Power 85 15 - 12
Highway and street 84 15 + 1
Health care 40 7 - 10
Commercial 39 7 - 21
Transportation 39 7 - 5
Manufacturing 38 7 - 35
Office 35 6 - 31
Sewage and waste disposal 28 5 + 18
Communication 18 3 - 8 Amusement and recreation 18 3 - 4 Other (water, public safety; lodging; conservation; religious): 9% of total
10Source: Census Bureau construction spending report
2008
2009
2010
$73
$81
$89
$97
Power (84% private)1-month change: -2.6%, 12-month:
-12%
Construction spending: industrial, heavy (billion $, SAAR)
2008
2009
2010
$16
$21
$26
$31
Communication (99.8% private)1-month change: -1.8%, 12-month:
-8%
11Source: Census Bureau construction spending reports
2008
2009
2010
$35
$45
$55
$65
Manufacturing (98% private)1-month change: 0.0%, 12-month:
-35%
2008
2009
2010
$15
$18
$21
$24
Amusement & recreation (37% private)1-month change: 0.9%, 12-month: -4%
2008
2009
2010
$75
$79
$83
$87
Highways (99.7% public)1-month change: 5.1%, 12-month:
1%
Construction spending: public works (billion $, SAAR)
2008
2009
2010
$24
$28
$32
$36
Transp. facilities (public)1-month change: 2.3%, 12-month:
-4%
12Source: Census Bureau construction spending reports
2008
2009
2010
$23
$25
$27
$29
Sewage/waste (99% public)1-month change: 4.3%, 12-month:
18%
2008
2009
2010
$13
$15
$17
$19
Water (96% public)1-month change: 2.7%, 12-month:
7%
2008
2009
2010
$30
$33
$36
$39
Higher education (25% private)1-month change: 5.2%, 12-month:
-6%
Construction spending: institutional (private + state/local)
2008
2009
2010
$26
$29
$32
$35
Hospitals (82% private)1-month change: -1.7%, 12-month:
-9%
13Source: Census Bureau construction spending reports
2008
2009
2010
$42
$50
$58
$66
PreK-12 ed. (4% private)1-month change: -4.3%, 12-month:
-18%
2008
2009
2010
$10
$12
$14
$16
Public safety1-month change: 4.3%, 12-month:
-8%
2008
2009
2010
$15
$30
$45
$60
Nonautomotive retail1-month change: -2.9%, 12-month:
-23%
Construction spending: developer-financed (billion $, SAAR)
2008
2009
2010
$4
$9
$14
$19
Warehouses1-month change: 0.8%, 12-month:
-41%
14Source: Census Bureau construction spending reports
2008
2009
2010
$20
$35
$50
$65
Office (private)1-month change: -0.1%, 12-month:
-40%
2008
2009
2010
$6
$18
$30
$42
Lodging (private)1-month change: -1.5%, 12-month:
-54%
2008 2009 20100%
2%
4%
6%
4-q
tr %
ch
an
ge
Employment cost index for construction4-quarter % change, 2008-2Q 2010 (2Q09-2Q10: 1.0%)
2008 2009 2010-3%
-2%
-1%
0%
1%
1-m
o %
ch
an
ge
Construction employment, wages, costs and output prices
15Source: BLS employment, employment cost index, producer price index (PPI)
Construction vs. all other nonfarm empl.▬ Const. 0.3% (+19,000) ▬ All other -0.1% (-73,000)
2008 2009 2010-1000%
0%
1000%
2000%
12
-mo
% c
ha
ng
e
Producer price index for construction inputs12-month % change, 2008-August 2010 (8/09-8/10: 3.6%)
-2%
0%
2%
4%
3.6%
-0.2%0.1% 0.3% 0.2%
12-m
o %
change
PPI for construction inputs, finished buildings12-month % change, August 2009-August 2010
2008 2009 201075
200
325
450
No. 2 diesel fuel1-month change: 5.8%, 12-month:
13.2%
Producer price indexes, 1/08-8/10
2008 2009 2010250
325
400
475
Copper & brass mill shapes1-month change: 6.5%, 12-month:
5.0%
16Source: BLS producer price index reports
2008 2009 2010125
175
225
275
Steel mill products1-month change: -3.9%, 12-month:
17.1%
2008 2009 2010140
160
180
200
Aluminum mill shapes1-month change: 1.8%, 12-month:
8.4%
2008 2009 2010200
250
300
350
Asphalt paving mixtures & blocks1-month change: -0.3%, 12-month:
5.1%
Producer price indexes, 1/08-8/10
2008 2009 2010195
205
215
225
Gypsum products1-month change: -0.1%, 12-month:
0.1%
17Source: BLS producer price index reports
2008 2009 2010205
210
215
220
Concrete products1-month change: 0.3%, 12-month:
-1.1%
2008 2009 2010140
160
180
200
Lumber and plywood1-month change: -2.3%, 12-month:
9.0%
Outlook for materials
• 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• Allow for 6 to 8% PPI increases after 2010
18Source: Author
State Construction Employment Change (U.S.: -5%) 8/09 to 8/10 (seasonally adjusted)
-4%
-11%
-7%
-8%
-13%
-10%
-6%
-20%
-5%
-12%
-8%
-3%
-3%
-3%
8%
9%
-3%
-9%
-1%
-10%
-1%
2%
-7%
-6%
-1%
-7%
-4%
-7% -2%
-1%
-2%
0%
- -4%
-7%
-5%
-5%
-9%
3%
3%
-2%
NH10%VT
-14%
CT-4%
RI2%
MA3%
DE-7%
NJ-8%
MD1%
HI-5%
-0.1 to -5%
-6 to -20%
DC4%
0 to 10%
19Source: BLS state and regional employment report
-5%
Source: BLS 20
'90'90'90'90'90'90'90'90'90'90'90'90'91'91'91'91'91'91'91'91'91'91'91'91'92'92'92'92'92'92'92'92'92'92'92'92'93'93'93'93'93'93'93'93'93'93'93'93'94'94'94'94'94'94'94'94'94'94'94'94'95'95'95'95'95'95'95'95'95'95'95'95'96'96'96'96'96'96'96'96'96'96'96'96'97'97'97'97'97'97'97'97'97'97'97'97'98'98'98'98'98'98'98'98'98'98'98'98'99'99'99'99'99'99'99'99'99'99'99'99'00'00'00'00'00'00'00'00'00'00'00'00'01'01'01'01'01'01'01'01'01'01'01'01'02'02'02'02'02'02'02'02'02'02'02'02'03'03'03'03'03'03'03'03'03'03'03'03'04'04'04'04'04'04'04'04'04'04'04'04'05'05'05'05'05'05'05'05'05'05'05'05'06'06'06'06'06'06'06'06'06'06'06'06'07'07'07'07'07'07'07'07'07'07'07'07'08'08'08'08'08'08'08'08'08'08'08'08'09'09'09'09'09'09'09'09'09'09'09'09'10'10'10'10'10'10'10'104,000
5,000
6,000
7,000
8,000
Aug. ‘96
5.6 mil-lion
Construction Employment in United States(seasonally adjusted; shading = recessions)
In t
ho
usa
nd
s
'90 '90 '91 '92 '93 '94 '95 '95 '96 '97 '98 '99 '00 '00 '01 '02 '03 '04 '05 '05 '06 '07 '08 '09 '1035
45
55
65
75
Feb. ‘0561,300
Construction Employment in Kansas(seasonally adjusted; shading = recessions)
In t
ho
usa
nd
s
Source: BLS 21
1 3 5 7 9 11 13 15 17 19-2000%
-1500%
-1000%
-500%
0%
500%
1000%
Construction Employment Change from Year AgoNot seasonally adjusted (NSA)
12
-mo
nth
% c
ha
ng
e
Kansas 7%3 out of 51
U.S. -4%
Change in construction employment, 8/09-8/10
Metro area or division12-mo. empl. change (NSA)
Rank(out of 337)
Statewide 7% -
Kansas City, KS* 13% 3
Topeka, KS* 5% 11
Wichita, KS* -3% 125
*Mining and logging included with construction
Source: AGC rankings, calculated from BLS state and area employment reports 22
Number of states with 1-year gains or losses in construction employmentJanuary 2007 to August 2010 (seasonally adjusted)
Jan-07 Jan-08 Jan-09 Jan-10-60
-45
-30
-15
0
15
30
# of
met
ros
# of states with:
gains
losses
More than 10%
0.1% to 10%
-10% to -0.1%
More than -10%
State Construction Employment Change from Peak (seasonally adjusted)
-19%
-36%
-36%
-43%
-47%
-36%
-23%
-59%
-53%
-35%
-28%
-4%
-11%
-11%
-9%
-5%
-16%
-38%
-18%
-31%
-6%
-23%
-29%
-47%
-26%
-27%
-27%
-26% -23%
-31%
-13%
-18%
- -29%
-33%
-33%
-47%
-30%
-17%
-7%
-36%
NH-21%VT
-34%
CT-27%
RI-28%
MA-23%
DE-39%
NJ-30%
MD-21%
HI-28%
-25% to -49.9%
-50% or worse
DC-26%
-10 to -24.9%
24Source: BLS state and regional employment report
-37%
0 to -9.9%
Predictors of construction demand
2008 2009 2010-4%
-3%
-2%
-1%
0%
1%
2%
Architectural services
Eng & drafting services
1-m
o %
ch
an
ge
, N.S
.A.
Architecture & engineering services empl.1-month % change, not seasonally adjusted
2008
2009
2010
25
30
35
40
45
50
55
Overall ABIOffice/ IndustrialInstitutionalMixed-practice
Arc
hite
ctur
e B
illin
gs I
ndex
, S
.A.
Architecture Billings Indexes(50=balance bet. higher and lower billings)
25Source: American Institute of Architects (billings) , BLS (employment)
Summary for 2010
• Nonres spending: -15 to -20% (more stimulus put in place, maybe gains in retail, higher ed, hospitals)
• Res: +5 to -5% (SF up, MF down all year)
• Total construction spending: -10% to -15%
• Materials costs: 0% to +4%
• Labor costs: +2% or less
26Source: Author
Summary for 2011
• Nonres spending: 0 to +5% (less stimulus; weak state-local; more retail, hotel, higher ed, hospitals)
• Res: +5 to +10% (SF up, MF leveling off)
• Total construction spending: +3 to +7%
• Materials costs: +3% to +8%
• Labor costs: +2.5% or less
27Source: Author
AGC economic resources (email [email protected])
• The Data DIGest: weekly 1-page email (sign up: www.agc.org/datadigest)
• PPI tables: emailed monthly
• State and metro data, fact sheets
• Stimulus info: www.agc.org/stimulus
• Webinars (Oct. 21 w/ AIA, Reed)
• Feedback on stimulus, credit, costs
28