CONSTRUCTION COST TRENDS

Central Texas Conference – November 12, 2010

Construction Cost Trends

1. Where have we been?National EconomyCentral Texas Economy

2. Current Conditions3. What Lies Ahead

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

National Economy

Chicago Federal Reserve – National Activity Index

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

Official US Bureau of Labor Reported RateOfficial Rate + Short Term Discouraged

WorkersOfficial Rate + Short and Long Term

Discouraged Workers

Unemployment

Construction Spending Trends

Source: Census Bureau construction spending reports $ in Billions

Stimulus Package

$787 Billion

Stimulus Package

High Debt

What Lies Ahead

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

Business Cycle

Commodity and Material Inventory

•Short Term • Inventories Drying up• Demand Low• Dollar Value low in relation to foreign currency

Predictors of construction demand

Architecture Billings Indexes

(50=balance bet. higher and lower billings)

Source: American Institute of Architects (billings) , BLS (employment)

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

Risks to Recovery in 2011-2012

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??

ENR National Building Cost Index

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

Sources

Anirban Basu, ABC Chief Economist

Ken Simonson, AGC Chief Economist

Jim Haughey, RCD Chief Economist

www.abc.org

www.agc.org

www.reedconstructiondata.com

CONSTRUCTION COST TRENDS

Central Texas North Conference – November 12, 2010

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