Construction & Materials Outlook<br />WSU Economic Outlook Conference<br />Wichita, October 7, 2010<br />Ken Simonson, Chi...
Current economic influences on construction<br />GDP, personal income: steady but modest gains<br />No upturn in office, r...
Construction-related stimulus funding (~$135 bil.)<br />$49 billion<br />up to $35 billion<br />$30 billion<br />$21 billi...
Stimulus timing, strings<br />Timing – road $ spent fast; other $ delayed due to:<br />New programs had to be designed<br ...
’09-’10 stimulus tax changes affecting:<br />- contractors’ cash flow<br />5-year carryback of ’08, ‘09 net operating loss...
Economic impact of nonresidential construction<br />Jobs: 28,500 per $1 billion<br />1/3 direct, onsite construction<br />...
Construction spending, level and 12-month changeSeasonally adjusted annual rate (SAAR), 2008-August 2010<br />▬Total Const...
Single- vs. multi-family, 2008-10, seasonally adjusted annual rate (SAAR)<br />8<br />Source: Census Bureau construction s...
Housing outlook<br />SF: starts, permits should rise in rest of ’10 & ’11<br />MF: Close to bottom; no big gains likely un...
Supply swelled by owners and banks who are trying to rent out houses and condos
Banks remain unwilling to lend to developers</li></ul>9<br />Source: Author<br />
Nonres totals (billion $, SAAR), share & 12-month change<br />10<br />Source: Census Bureau construction spending report<b...
Construction spending: industrial, heavy (billion $, SAAR)<br />Amusement & recreation (37% private)<br />1-month change: ...
Construction spending: public works (billion $, SAAR)<br />12<br />Source: Census Bureau construction spending reports<br />
Construction spending: institutional (private + state/local)<br />13<br />Source: Census Bureau construction spending repo...
Construction spending: developer-financed (billion $, SAAR)<br />14<br />Source: Census Bureau construction spending repor...
Construction employment, wages, costs and output prices<br />Construction vs. all other nonfarm empl.<br />▬ Const. 0.3% (...
Producer price indexes, 1/08-8/10<br />16<br />Source: BLS producer price index reports<br />
Producer price indexes, 1/08-8/10<br />17<br />Source: BLS producer price index reports<br />
Outlook for materials<br />Industry depends on specific materials that:<br />are in demand worldwide<br />have erratic sup...
State Construction Employment Change (U.S.: -5%) 8/09 to 8/10 (seasonally adjusted)<br />-11%<br />-13%<br />-10%<br />-9%...
20<br />Source: BLS<br />
Kansas 7%<br />3 out of 51<br />U.S. -4%<br />21<br />Source: BLS<br />
Change in construction employment, 8/09-8/10<br />22<br />Source: AGC rankings, calculated from BLS state and area employm...
Number of states with 1-year gains or losses in construction employmentJanuary 2007 to August 2010 (seasonally adjusted)<b...
State Construction Employment Change from Peak <br />(seasonally adjusted)<br />-36%<br />-47%<br />-36%<br />-30%<br />NH...
Predictors of construction demand<br />Architecture & engineering services empl.<br />1-month % change, not seasonally adj...
Summary for 2010<br />Nonres spending: -15 to -20% (more stimulus put in place, maybe gains in retail, higher ed, hospital...
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National Forecast and Construction

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National Forecast and Construction

  1. 1. Construction & Materials Outlook<br />WSU Economic Outlook Conference<br />Wichita, October 7, 2010<br />Ken Simonson, Chief Economist<br />AGC of America<br />simonsonk@agc.org<br />
  2. 2. Current economic influences on construction<br />GDP, personal income: steady but modest gains<br />No upturn in office, retail, warehouse rent/occupancy<br />Loans for developers remain tight-to-unavailable<br />State/local tax shortfalls deeper spending cuts<br />Stimulus (details: www.agc.org/stimulus)<br />2<br />Source: Author<br />
  3. 3. Construction-related stimulus funding (~$135 bil.)<br />$49 billion<br />up to $35 billion<br />$30 billion<br />$21 billion<br />3<br />Source: Author<br />
  4. 4. Stimulus timing, strings<br />Timing – road $ spent fast; other $ delayed due to:<br />New programs had to be designed<br />Agencies didn’t have enough personnel<br />Buy American terms stopped use of funds <br />Other factors<br />Davis-Bacon<br />Reporting requirements: jobs, executives’ pay<br />4<br />Source: Author<br />
  5. 5. ’09-’10 stimulus tax changes affecting:<br />- contractors’ cash flow<br />5-year carryback of ’08, ‘09 net operating losses<br />6.2% payroll tax credit for workers hired 3/18-12/31/10<br />- demand for construction<br />Build America bonds: cheaper financing; more projects?<br />$8000 homebuyer tax credit: mixed impact<br />5<br />Source: Author<br />
  6. 6. Economic impact of nonresidential construction<br />Jobs: 28,500 per $1 billion<br />1/3 direct, onsite construction<br />1/6 indirect (quarries, mfg., services)<br />1/2 “induced” by spending from higher earnings of construction, indirect workers and owners<br />GDP: $3.4 billion<br />Personal Earnings: $1.1 billion<br />6<br />Source: Prof. Stephen Fuller, George Mason University<br />
  7. 7. Construction spending, level and 12-month changeSeasonally adjusted annual rate (SAAR), 2008-August 2010<br />▬Total Construction<br />($812 billion, -10%)<br />▬Public<br /> ($314 billion, -1%)<br />▬Private Nonresidential<br /> ($260 billion, -24%)<br />▬Private Residential<br /> ($238 billion, -2%)<br />7<br />Source: Census Bureau construction spending reports<br />
  8. 8. Single- vs. multi-family, 2008-10, seasonally adjusted annual rate (SAAR)<br />8<br />Source: Census Bureau construction spending, housing starts reports<br />
  9. 9. Housing outlook<br />SF: starts, permits should rise in rest of ’10 & ’11<br />MF: Close to bottom; no big gains likely until ’11<br /><ul><li>Rental demand should rise as impacts fade from renters losing jobs or using first-time homebuyer credit
  10. 10. Supply swelled by owners and banks who are trying to rent out houses and condos
  11. 11. Banks remain unwilling to lend to developers</li></ul>9<br />Source: Author<br />
  12. 12. Nonres totals (billion $, SAAR), share & 12-month change<br />10<br />Source: Census Bureau construction spending report<br />
  13. 13. Construction spending: industrial, heavy (billion $, SAAR)<br />Amusement & recreation (37% private)<br />1-month change: 0.9%, 12-month: -4%<br />11<br />Source: Census Bureau construction spending reports<br />
  14. 14. Construction spending: public works (billion $, SAAR)<br />12<br />Source: Census Bureau construction spending reports<br />
  15. 15. Construction spending: institutional (private + state/local)<br />13<br />Source: Census Bureau construction spending reports<br />
  16. 16. Construction spending: developer-financed (billion $, SAAR)<br />14<br />Source: Census Bureau construction spending reports<br />
  17. 17. Construction employment, wages, costs and output prices<br />Construction vs. all other nonfarm empl.<br />▬ Const. 0.3% (+19,000) ▬ All other -0.1% (-73,000)<br />Producer price index for construction inputs<br />12-month % change, 2008-August 2010 (8/09-8/10: 3.6%)<br />PPI for construction inputs, finished buildings<br />12-month % change, August 2009-August 2010<br />Employment cost index for construction<br />4-quarter % change, 2008-2Q 2010 (2Q09-2Q10: 1.0%)<br />15<br />Source: BLS employment, employment cost index, producer price index (PPI)<br />
  18. 18. Producer price indexes, 1/08-8/10<br />16<br />Source: BLS producer price index reports<br />
  19. 19. Producer price indexes, 1/08-8/10<br />17<br />Source: BLS producer price index reports<br />
  20. 20. Outlook for materials<br />Industry depends on specific materials that:<br />are in demand worldwide<br />have erratic supply growth<br />are heavy, bulky or hard to transport<br />Construction requires physical delivery<br />Thus, industry is subject to price spurts, transport bottlenecks, fuel price swings<br />Allow for 6 to 8% PPI increases after 2010<br />18<br />Source: Author<br />
  21. 21. State Construction Employment Change (U.S.: -5%) 8/09 to 8/10 (seasonally adjusted)<br />-11%<br />-13%<br />-10%<br />-9%<br />NH10%<br /> -9%<br />-3%<br />-7%<br />VT-14%<br />2%<br />-2%<br />-3%<br />-6%<br />-6%<br />MA3%<br /> -8%<br />-20%<br />0%<br />-1%<br />-3%<br />-2%<br />-1%<br />RI2%<br />-7%<br />-1%<br />-12%<br /> 3%<br />NJ-8%<br />CT-4% <br />-10%<br />- -4%<br />8%<br /> -7%<br />DC4%<br />-5%<br />MD<br />1%<br /> -7%<br />-8%<br />-4%<br /> 9%<br />-3%<br />3%<br /> -5%<br />-5%<br />DE-7%<br />-2%<br />-7%<br />-1%<br />0 to 10%<br /> -5%<br />-0.1 to -5%<br />-6 to -20%<br /> -4%<br />19<br />Source: BLS state and regional employment report<br />HI-5%<br />
  22. 22. 20<br />Source: BLS<br />
  23. 23. Kansas 7%<br />3 out of 51<br />U.S. -4%<br />21<br />Source: BLS<br />
  24. 24. Change in construction employment, 8/09-8/10<br />22<br />Source: AGC rankings, calculated from BLS state and area employment reports<br />
  25. 25. Number of states with 1-year gains or losses in construction employmentJanuary 2007 to August 2010 (seasonally adjusted)<br />
  26. 26. State Construction Employment Change from Peak <br />(seasonally adjusted)<br />-36%<br />-47%<br />-36%<br />-30%<br />NH-21%<br /> -38%<br />-4%<br />-36%<br />VT-34%<br />-23%<br />-13%<br />-11%<br />-47%<br />-23%<br />MA-23%<br /> -43%<br />-59%<br />-18%<br />-18%<br />-11%<br />-36%<br />-31%<br />RI-28%<br />-29%<br />-26%<br />-35%<br />-17%<br />NJ-30%<br />CT-27% <br />-31%<br />- -29%<br />-9%<br /> -27%<br />DC-26%<br />-53%<br />MD-21%<br /> -33%<br />-28%<br />-27%<br /> -5%<br />-16%<br />-7%<br /> -37%<br />-33%<br />DE-39%<br />-23%<br />-26%<br />0 to -9.9%<br />-6%<br />-10 to -24.9%<br /> -47%<br />-25% to -49.9%<br />-50% or worse<br /> -19%<br />24<br />Source: BLS state and regional employment report<br />HI-28%<br />
  27. 27. Predictors of construction demand<br />Architecture & engineering services empl.<br />1-month % change, not seasonally adjusted<br />Architecture Billings Indexes<br />(50=balance bet. higher and lower billings)<br />25<br />Source: American Institute of Architects (billings) , BLS (employment)<br />
  28. 28. Summary for 2010<br />Nonres spending: -15 to -20% (more stimulus put in place, maybe gains in retail, higher ed, hospitals)<br />Res: +5 to -5% (SF up, MF down all year)<br />Total construction spending: -10% to -15%<br />Materials costs: 0% to +4%<br />Labor costs: +2% or less<br />26<br />Source: Author<br />
  29. 29. Summary for 2011<br />Nonres spending: 0 to +5% (less stimulus; weak state-local; more retail, hotel, higher ed, hospitals)<br />Res: +5 to +10% (SF up, MF leveling off)<br />Total construction spending: +3 to +7%<br />Materials costs: +3% to +8%<br />Labor costs: +2.5% or less<br />27<br />Source: Author<br />
  30. 30. AGC economic resources (email simonsonk@agc.org)<br />The Data DIGest: weekly 1-page email (sign up: www.agc.org/datadigest)<br />PPI tables: emailed monthly<br />State and metro data, fact sheets<br />Stimulus info: www.agc.org/stimulus<br />Webinars (Oct. 21 w/ AIA, Reed)<br />Feedback on stimulus, credit, costs<br />28<br />
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