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Construction & Materials Outlook

Construction & Materials Outlook. Austin AGC May 14, 2013 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org. Construction is growing, but unevenly. 2. Source: Author. 3 trends helping many sectors and regions: ‘Shale gale’ Panama Canal expansion Residential revival

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Construction & Materials Outlook

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  1. Construction & Materials Outlook Austin AGC May 14, 2013 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

  2. Construction is growing, but unevenly 2 Source: Author 3 trends helping many sectors and regions: • ‘Shale gale’ • Panama Canal expansion • Residential revival 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

  3. One (or many) bright spot(s): the shale ‘gale’ Cody Bakken Gammon Mowry Antrim Baxter-Mancos Marcellus/ Devonian/Utica Niobrara Mancos Pierre Mulky New Albany Lewis Fayetteville Woodford Barnett- Woodford Floyd-Neal Barnett Haynesville Eagle Ford Source: Energy Information Administration, Annual Energy Outlook, 2008 to 2011

  4. Shale’s direct and indirect impacts on construction 4 Source: Author 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; LNG-powered vehicles Losers: coal; maybe wind, solar, nuclear & suppliers

  5. U.S. Post-Panamax Ready Ports Seattle & Tacoma Columbia River at Mouth, OR & WA New York-New Jersey Baltimore Oakland Norfolk Los Angeles/ Long Beach San Diego (with tide) Charleston (with tide) Savannah Jacksonville Mobile Miami 5 Source: U.S. Army Corps of Engineers

  6. Panama Canal expansion’s impacts on construction 6 Source: Author Ports: investing in dredging, piers, cranes, land access Nearby: Storage, warehouse, trucking, rail facilities Bridge, tunnel, highway improvements Inland: possible changes in distribution, manufacturing

  7. Residential spending still accelerating—for now 12-month percent change in single- and multifamily spending, 1/11-3/13 Latest 12-mo: MF: 52% SF: 34% Source: Census Bureau construction spending reports

  8. Housing outlook 8 Source: Author • SF: rising for now but tight credit, selective labor shortages may limit increases • MF: Upturn should last through 2013, maybe 2014 • Vacancy rate is now at an 13-year low • Preference for urban living, fear of lock-in add to demand • But condo market remains weak • And government-subsidized market likely to worsen • Improvements: should benefit from rising SF sales

  9. Construction spending (seasonally adjusted annual rate—SAAR ) Total construction, 1/08-3/13 (billion $) Private nonres, residential & public, 1/08-3/13 Latest 1-month change: -1.7% Latest 1-mo: (-1.5%) (0.4%) (-4.1%) 12-month % change, 1/11-3/13 12-month % change, 1/11-3/13 Latest 12-month change: 4.8% Latest 12-mo: (2.8%) (18.2%) (-5.4%) Source: Census Bureau construction spending reports

  10. Nonres totals (billion $, SAAR), share & 12-month change 10 Source: Census Bureau construction spending report

  11. Construction spending: public works (billion $, SAAR) Latest 1-mo. change: -5.1%, 12-mo.: -5% Latest 1-mo. change: -10.4%, 12-mo.: -19% Amusement & recreation (60% public) Latest 1-mo. change: -0.8%, 12-mo.: -13% Latest 1-mo. change: -6.4%, 12-mo.: -6% Source: Census Bureau construction spending reports

  12. Construction spending: institutional (private + state/local) Latest 1-mo. change: -3.5%, 12-mo.: -3% Latest 1-mo. change: -5.0%, 12-mo.: -11% Latest 1-mo. change: 3.2%, 12-mo.: 1% Latest 1-mo. change: -4.4%, 12-mo.: -6% Source: Census Bureau construction spending reports

  13. Construction spending: industrial, heavy (billion $, SAAR) Latest 1-mo. change: -2.7%, 12-mo.: 4% Latest 1-mo. change: -1.2%, 12-mo.: 3% Public transportation facilities Latest 1-mo. change: 1.1%, 12-mo.: 13% Latest 1-mo. change: -2.6%, 12-mo.: 22% Source: Census Bureau construction spending reports

  14. Construction spending: developer-financed (billion $, SAAR) Latest 1-mo. change: -2.8%, 12-mo.: -1% Latest 1-mo. change: 0.8%, 12-mo.: 17% Latest 1-mo. change: -6.6%, 12-mo.: 18% Latest 1-mo. change: 2.4%, 12-mo.: 18% Source: Census Bureau construction spending reports

  15. State construction employment change (U.S.: 2.5%) 3/12 to 3/13: DC + 31 states up, 19 down -10% or worse -5.0% to -9.9% -0.1% to -4.9% 0% to 4.9% 5.0% to 9.9% 10% or better 2% 2% -8% 4% NH2% 2% 7% 3% -3% 1% 4% VT -3% -8% 7% 7% 3% -1% -1% MA1% 9% -0.2% -5% -4% -2% 5% -2% -1% 0.4% CT3% RI-10% -3% -1% 7% -3% DE2% NJ1% 2% 1% 5% 7% -6% 2% 2% -4% -1% MD 5% DC4% 9% 3% 11% 15 Source: BLS state and regional employment report HI11%

  16. Construction Employment Change from Year Ago1/08-3/13 (not seasonally adjusted) Texas 6.9% 8 out of 51 U.S. 2.8% 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 vs. overall (un)employment, 4/11-4/13 • Private sector added jobs since 2010, construction only since 1/11 • Construction unemployment fell faster than industry added jobs • Thus, workers are leaving for other sectors, school, retiring Unemployment rates (April 2011-April 2013) Change in unemployment & employment (Not seasonally adjusted, April 2011-April 2013) Source: BLS employment, unemployment reports

  20. Construction spending, labor & prices, 3/11-3/13 Spending +14% but jobs only +6%. How do they do it? • Contractors charging slightly more: PPI +5% (industrial buildings) • More hours per worker: aggregate hours +9% • Implication: further spending growth will trigger bigger pickup in hiring 14% Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

  21. Material & labor costs vs. office & highway bid prices, 12/10-3/13 Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI); Federal Highway Administration for National Highway Construction Cost Index (NHCCI)

  22. Producer price indexes for key inputs, 1/11-3/13 (January 2011=100) Steel mill products Copper & brass mill shapes Gypsum products Lumber & plywood Source: Author, based on BLS producer price index reports

  23. Producer price indexes for key inputs, 1/11-3/13 (January 2011=100) No. 2 diesel fuel Concrete products Asphalt paving mixtures & blocks Prepared asphalt & tar roofing & siding materials Source: Author, based on BLS producer price index reports

  24. Summary for 2013 24 Source: Author Private nonres spending +10 to +15% (vs. 18% in ‘12): more power, pipelines, mfg., warehouse, higher ed, data centers, hotels, maybe hospitals; not office or retail Res +10% to +15% (vs. 16% in ‘12): MF very strong, SF ?? Public: -2 to -5% (vs. -3% in ‘12): highways, educational 0%, other transp. -5%; declining federal funds Total construction spending: +5 to +10% (vs. 10% in ‘12) Materials costs: +2 to +4% Dec.-Dec. (vs. 1.3% in ‘12) Labor costs: +2% to +3.5% (vs. 1.6% in ‘12)

  25. Trends: 2014-2017 25 Source: Author • Total construction spending: +6% to +10% per year - less SF housing, retail; declining public spending - new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults • Materials costs: +3% to +8% (vs. 2% to 3% for CPI) • Labor costs: +2% to + 4% • Bid prices: +2% to +5%

  26. AGC economic resources (email simonsonk@agc.org) 26 • The Data DIGest: weekly 1-page email (subscribe at: www.agc.org/datadigest) • 5 monthly press releases: national, state, metro employment; spending; PPI • State and metro data, fact sheets • Website: http://www.agc.org/Economics

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