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Good News—The Recession Is Over! (but not for construction)

Good News—The Recession Is Over! (but not for construction). The Houston Economics Club April 15, 2009 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org. Current economic influences. Credit market freeze affecting private, state and local borrowers

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Good News—The Recession Is Over! (but not for construction)

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  1. Good News—The Recession Is Over!(but not for construction) The Houston Economics Club April 15, 2009 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org

  2. Current economic influences • Credit market freeze affecting private, state and local borrowers • Weak demand for income-producing properties • Falling state spending • No job growth, rising unemployment • Stimulus (details: www.agc.org/stimulus) Source: Author

  3. Economic Stimulus Package Total of $787 billion in spending and tax cuts • $308 billion in appropriated spending • $269 billion in direct spending (refundable portion of tax credits, unemployment benefits, Medicaid reimbursement to states, etc.) • $211 billion in tax cuts Source: Author

  4. Economic Stimulus Package $49 billion up to $38 billion $30 billion $21 billion Source: Author

  5. Stimulus tax provisions affecting construction • 1-year delay (to 2012) in 3% withholding on gov. contracts • Increased expensing • Net operating loss: 5 year carryback of NOL for small business (<$15 mil. in gross receipts) • Qualified school construction bonds • “Build America” bonds • Bonds for “recovery zones,” tribal areas, renewable energy, energy conservation • Modified renewable energy, conservation credits Source: Author

  6. Stimulus timing, strings • Timing – highways • States must obligate ½ of their total by June 30 • States must obligate remainder by Feb. 17, 2010 • Timing – other construction: language varies • Conditions • Davis-Bacon • Buy American • No E-Verify requirement or broad-based FAR • No project labor agreement mandate, but… Source: Author

  7. The shifting construction market (construction spending, seasonally adjusted annual rate) (-0.2%) (+3%) (-30%) Source: Census Bureau

  8. Single-family (SF) vs. multifamily (MF)

  9. Housing outlook • SF: No relief yet for decline in permits, starts or spending, but sales could pick up by mid-‘09 • Starts won’t improve until late-‘09 at best • MF: Rental construction cushioned the fall in condo starts but now many owners are trying to rent out houses and condos • Foreclosures will add to inventories, drag down both sales and rentals Source: Author

  10. Nonres totals, share, 1- & 12-month change Source: Census Bureau 10

  11. Public construction (seas. adj. annual rate) Source: Census Bureau

  12. Spending outlook for 2009 Source: Census (2008); Author (2009)

  13. Materials and components Source: BLS (CPI, PPI)

  14. Change in Producer Prices for Construction vs. Consumer Prices, 2003 - 2009 (December 2003 = 100) Mar. 2009 Source: BLS (CPI, PPI)

  15. Producer Price Indexes, 2007 - 2009 1-month: -0.6%12-month: -1.9% 1-month: -0.9%12-month: -7.0% Inputs to construction industries Highway & street construction 1-month: -0.8%12-month: -5.8% 1-month: -0.6%12-month: -2.6% Other heavy construction Nonresidential buildings

  16. Producer Price Indexes, 2007 - 2009 1-month: -8.9%12-month: -62.5% 1-month: -0.1%12-month: -14.6% No. 2 Diesel Fuel Steel Mill Products 1-month: -1.9%12-month: 17.4% 1-month: -0.9%12-month: 3.6% Asphalt Paving Mixtures & Blocks Concrete Products

  17. Producer Price Indexes, 2007 - 2009 1-month: -0.8%12-month: -37.0% 1-month: -2.9%12-month: -22.3% Copper & Brass Mill Shapes Aluminum Mill Shapes 1-month: 0.0%12-month: 9.0% 1-month: -2.5%12-month: -9.6% Gypsum Products Lumber and Plywood

  18. Outlook for materials in ‘09 compared to ‘08 • Lower average prices: diesel, asphalt, steel • Possible increases: concrete, gypsum, copper, wood products • Year-over-year PPI change: -4% to 0% Source: Author’s forecasts

  19. Outlook for materials (beyond 2009) • 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 6 to 8% PPI increases, higher spikes Source: Author’s forecast

  20. Construction jobs fall, but wages rise (seasonally adjusted) 20

  21. State Construction Employment2/08 to 2/09 (U.S. -11.1%) WA-11% ID-14% MT-14% ME -9% NH-15% MN -16% ND-0.5% OR-17% VT-22% WI -11% NY -5% MI -10% SD -5% MA-12% WY -4% CA -19% NV-18% PA -6% IA -3% RI-16% UT-16% NE -1% OH-14% IL -11% IN -10% NJ-12% CO -12% WV -4% CT-19% MO-7% VA- -14% KS -6% KY -15% MD-13% DC-5% AZ-27% NC -17% NM-9% TN-16% OK +1% DE-13% TX -6% AR+1% SC- -9% GA-13% AL -15% MS -7% LA +8% 0.5 to 8.2% FL -21% AK -1% -11.0 to 0% HI-10% -11.6 to -26.8%

  22. Summary for 2009 • Nonres spending: -3 to -9% • Res: -2 to +2% (SF up in 2d half, MF down all year) • Total construction spending: -1% to -7% • Materials costs: -4% to 0% • Labor costs: +3% to +4% 22

  23. AGC economic resources (sign up by email to simonsonk@agc.org) • The Data DIGest: weekly one-page email • PPI tables: emailed monthly • State-specific stimulus estimates and fact sheets: www.agc.org/stimulus • Webinars/audioconferences • Member emails on stimulus jobs, credit market

  24. Ken SimonsonChief EconomistAssociated General Contractors of Americasimonsonk@agc.org, 703-837-5313www.agc.org

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