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Construction Cost Trends

Construction Cost Trends. Central Texas Conference – November 12, 2010. Construction Cost Trends. Where have we been? National Economy Central Texas Economy Current Conditions What Lies Ahead. Where have we been? National. Slowdown began in 2007 Recession Began in 2008

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Construction Cost Trends

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  1. Construction Cost Trends Central Texas Conference – November 12, 2010

  2. Construction Cost Trends • Where have we been? National Economy Central Texas Economy • Current Conditions • What Lies Ahead

  3. Where have we been?National • Slowdown began in 2007 • Recession Began in 2008 • Deeper and longer duration than any recession in the past 40 years • Recession “technically” ended in early 2010

  4. National Economy Chicago Federal Reserve – National Activity Index

  5. Economic Factors • High Unemployment • Stimulus Package • High Federal, State and Personal Debt • Unstable Financial Markets • Tightened Lending • Foreclosures • Higher Taxes? • Uncertainty of Federal Government Policies • Reduced Consumer Spending

  6. Unemployment Official US Bureau of Labor Reported Rate Official Rate + Short Term Discouraged Workers Official Rate + Short and Long Term Discouraged Workers

  7. Construction Spending Trends Source: Census Bureau construction spending reports $ in Billions

  8. Stimulus Package $787 Billion

  9. Stimulus Package

  10. High Debt

  11. What Lies Ahead

  12. Central Texas • Recession started 1 year later than nation • Depth and Length will be shorter • Forbes: Austin and Washington DC tied for top spot surviving the recession • 1.7m population – up 6.9% • What Texas didn’t have - Housing Bubble / Bust • Samsung will soon represent $9B foreign investment – largest in Texas history • Central Texas School Bond Activity

  13. Business Cycle

  14. Commodity and Material Inventory • Short Term • Inventories Drying up • Demand Low • Dollar Value low in relation to foreign currency

  15. Predictors of construction demand Architecture Billings Indexes (50=balance bet. higher and lower billings) Source: American Institute of Architects (billings) , BLS (employment)

  16. Risks to Recovery in 2011-2012 • Lack of Confidence in US Government Policies • Additional Federal Spending ? • Tax / Policy Changes? • Slowing Growth in China • Currently a very high 9% – not a sustainable rate long term • Rapid drop would affect US exports and manufacturing • Instability of State’s Financial Situation • Unfunded mandates (pensions, benefits, etc.) • Will affect personal spending • European Debt Crisis • Austerity Programs have cut spending dramatically • Bond defaults could trigger interest rate increases Source: Jim Haughey, Reed Construction Data Chief Economist

  17. Caution Ahead • High Risk Environment • Under pricing Work • Hoping for turnaround • GC and Subcontractor Failures • Likely higher in 2011 • Default Claims • Profitable Backlog has been worked off • Close doors and wait it out? • Double Dip Recession??

  18. ENR National Building Cost Index

  19. When will costs begin to rise again – how much? • AGC • Materials costs: +3% to +8% • Labor costs: +2.5% or less • Reed • Commodities +5% to 6% • ABC • Total Costs +3% to 6% • Contingency Needed

  20. Sources Anirban Basu, ABC Chief Economist www.abc.org Ken Simonson, AGC Chief Economist www.agc.org Jim Haughey, RCD Chief Economist www.reedconstructiondata.com

  21. Presented by: Jimmy Disler, Executive Director of Capital Improvements, Leander ISD Jimmy.Disler@leanderisd.org Randy Baldwin, Assistant Director of Construction Management, Austin ISD RBaldwin@austinisd.org Marty Burger, American Constructors MBurger@acitexas.com Grant Hutton, American Constructors GHutton@acitexas.com Construction Cost Trends Central Texas North Conference – November 12, 2010

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