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Construction & Materials Outlook

Construction & Materials Outlook. Carolinas AGC BUSS Divisions Meeting Myrtle Beach , SC, July 16, 2011 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org. Current economic influences on construction. 2. Source: AGC. GDP, personal income, jobs: weak gains should improve

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Construction & Materials Outlook

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  1. Construction & Materials Outlook Carolinas AGC BUSS Divisions Meeting Myrtle Beach, SC, July 16, 2011 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org

  2. Current economic influences on construction 2 • Source: AGC GDP, personal income, jobs: weak gains should improve Continuing problems for office, retail State/local spending: infrastructure not a priority Federal spending helped but will decline soon Recent price spikes for diesel, metals, plastics, rubber

  3. Federal funding sources and outlook 3 • Source: AGC Stimulus: 61 programs, totaling $135 billion; at peak now Base realignment: at peak now, due to end 9/30/11 Gulf Coast hurricane work: was due to end 6/1/11 Highway, airways trust funds: on short-term extension Water, wastewaster state revolving funds: flat or down

  4. Construction-related stimulus funding (~$135 bil.) $49 billion up to $35 billion $30 billion $21 billion 4 • Source: AGC

  5. Construction spending: trend, latest level, 12-mo. changeSeasonally adjusted annual rate (SAAR), March 2006-May 2011 • ▬ Total construction • May 2011: $753 billion • May 2010-May 2011: -7% • ▬Public: $276 billion, -9% • ▬Private nonres: $248 billion, -5% • ▬Private residential: $229 billion, -7% 5 • Source: Census Bureau construction spending reports

  6. Single- vs. multi-family, 2008-11, seasonally adjusted annual rate (SAAR) Single-family & improvements spending ▬SF(1-mo 0%, 12-mo -12%), ▬Imp(1-mo -4%, 12-mo -1%) Latest 1-mo. change: -2%, 12-mo.: -7% Multi-family permits & starts Single-family permits & starts ▬Permits (1-mo 25%, 12-mo 41%) ▬Starts (1-mo 3%, 12-mo 18%) ▬Permits (1-mo 3%, 12-mo -7%) ▬Starts (1-mo 4%, 12-mo -9%) • Source: Census Bureau construction spending, housing starts reports

  7. Housing outlook 7 • Source: Author • SF: starts, permits should rise gradually by late ’11 • MF: Upturn has begun, should accelerate in ’11 • Rental demand should rise as more people get jobs or move to military base realignment sites • Condo market continues to have large overhang • Government-subsidized market likely to worsen

  8. Nonres totals (billion $, SAAR), share & 12-month change 8 • Source: Census Bureau construction spending report

  9. Construction spending: public works (billion $, SAAR) Latest 1-mo. change: -1.5%, 12-mo.: -11% Latest 1-mo. change: 3.6%, 12-mo.: -9% Latest 1-mo. change:-1.9%, 12-mo.: -16% Latest 1-mo. change: -0.3%, 12-mo.: -13% • Source: Census Bureau construction spending reports

  10. Construction spending: institutional (private + state/local) Latest 1-mo. change: 1.9%, 12-mo.: -2% Latest 1-mo. change: 3.2%, 12-mo.: -3% Latest 1-mo. change: 1.3%, 12-mo.: -9% Latest 1-mo. change: 2.3%, 12-mo.: -15% • Source: Census Bureau construction spending reports

  11. Construction spending: industrial, heavy (billion $, SAAR) Latest 1-mo. change: 3.6%, 12-mo.: 10% Latest 1-mo. change: 1.9%, 12-mo.: -19% Latest 1-mo. change: -2.6%, 12-mo.: -6% Latest 1-mo. change: 1.3%, 12-mo.: -12% • Source: Census Bureau construction spending reports

  12. Construction spending: developer-financed (billion $, SAAR) Latest 1-mo. change: 0.3%, 12-mo.: -8% Latest 1-mo. change: 1.3%, 12-mo.: -12% Latest 1-mo. change: 5.2%, 12-mo.: -4% Latest 1-mo. change: 1.5%, 12-mo.: -29% • Source: Census Bureau construction spending reports

  13. Economic impact of nonresidential construction • Source: Prof. Stephen Fuller, George Mason University • 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

  14. Construction and total private employment, 2008-June 2011 Latest 1-mo. change: 0.0%, 12-mo.: 1.6% Latest 1-mo. change: -0.2%, 12-mo.: 0.0% Latest 1-mo. change: -0.2%, 12-mo.: 2.8% • Source: Census Bureau construction spending reports

  15. State construction employment change (U.S.: 0%) 5/10 to 5/11 (seasonally adjusted) -10% or worse -5.0% to -9.9% -0.5% to -4.9% 0% to 4.9% 5% or better -2% NH-4% -6% -4% 1% -6% 3% 2% 5% VT -8% -6% -2% -2% 1% MA1% 0% -11% 0% 0% -3% 3% 1% 3% 2% CT0% RI-10% -8% -4% 2% 0% 4% -6% DE1% NJ-2% -1% -5% -7% 3% 4% 4% -6% MD -5% DC4% -4% -9% -2% -1% 1% -4% -4% 15 • Source: BLS state and regional employment report HI4%

  16. Construction employment change from year agoSeasonally adjusted (SA) U.S. 0% North Carolina -4.5% 39 out of 51 16 • Source: BLS

  17. 17 • Source: BLS

  18. Employment change by metro (not seasonally adjusted) 18 • Source: AGC rankings, calculated from BLS state and area employment reports

  19. Construction employment, wages, costs and output prices Unemployment rates, June 2008-June 2011 Producer price index for construction inputs not seasonally adjusted, █ construction █ total 12-mo. % change, 2008-May 2011 (5/10-5/11: 7.5%) Employment cost index for construction PPI for construction inputs, finished buildings 4-quarter % change, 2008-1Q 2011 (1Q10-1Q11: 0.6%) 12-mo. % change, May 2010-May 2011 • Source: BLS employment, employment cost index, producer price index (PPI)

  20. Construction materials costs vs. new offices, highways, CPI PPI for materials CPI March 2009=100 PPI for offices NHCCI 2009 2010 ‘11 • Source: Author, based on Bureau of Labor Statistics (consumer & producer price indexes--monthly), Federal Highway Administration (National Highway Construction Cost Index--quarterly)

  21. Producer price indexes for key inputs, 1/08-5/11 (January 2008=100) Metal products No. 2 diesel fuel Latest 1-mo. change: -3.2%, 12-mo.: 40% Highway materials Building materials • Source: Author, based on BLS producer price index reports

  22. Outlook for materials 22 • Source: Author • 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 • Expect periods of 6 to 8% PPI increases

  23. Summary for 2011 23 • Source: Author Nonres spending: 0 to +5% (less stimulus; weak state-local; more warehouse, hotel, hospitals, higher ed) Res: +5 to +10% (SF up a bit, MF accelerating) Total construction spending: +3 to +7% Materials costs: +3% to +8%; +5 to +6% Dec.-Dec. Labor costs: +1.5% or less

  24. Annual projections: 2012-2016 24 • Source: Author Total construction spending: +6% to +10% Materials costs: +3% to +8% Labor costs: +2% to + 4% Bid prices: +2% to +5%

  25. AGC economic resources (email simonsonk@agc.org) 25 • The Data DIGest: weekly 1-page email (subscribe at: www.agc.org/datadigest) • PPI tables: emailed monthly • State and metro data, fact sheets • Webinars: Aug. 3—materials costs • Feedback on activity, credit, costs

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