Construction & Materials Outlook AGC Oregon-Columbia Chapter Wilsonville, OR, October 29, 2008 Ken...
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Transcript of Construction & Materials Outlook AGC Oregon-Columbia Chapter Wilsonville, OR, October 29, 2008 Ken...
Construction & Materials Outlook
AGC Oregon-Columbia ChapterWilsonville, OR, October 29, 2008Ken Simonson, Chief Economist
AGC of [email protected]
2
Current economic influences
• Credit market freeze affecting private, state and local borrowers
• Weak economic outlook, falling state spending
• No job growth, rising unemployment• Wages, personal income < CPI change
Source: Author, from BEA (GDP, personal income), BLS (CPI, employment, unemployment)
3
The shifting construction market(total change August 2007 – August 2008: -6%)
-28% i+13% i
+8% i
0
100
200
300
400
500
600
PrivateResidential
PrivateNonresidential
Public$ B
illio
ns
(S
ea
s. A
dj.
An
nu
al R
ate
)
Aug. 2007
Aug. 2008
Source: Census (construction spending)
4
Single-family (SF) vs. multifamily (MF)• August construction spending (value put in
place):• SF: -4.2% vs. July, -41% vs. 8/07• MF: -4.2% vs. July, -4.3% vs. 8/07• Improvements: +9.8% vs. July, -8.4% vs. 8/07
• September building permits:• SF: -3.8% vs. August, -38.9% vs. 9/07• MF: -16.4% vs. August, -37.6% vs. 9/07
• September housing starts:• SF: -12.0% vs. August, -41.9% vs. 9/07• MF: +7.5% vs. August, +9.6% vs. 9/07
Source: Census
5
Housing outlook
• SF: No relief yet for decline in permits, starts or spending, but sales could pick up by early ‘09
• Starts won’t improve until mid ‘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
6
Nonres ’07 totals, change; ’08 YTD change
’07 Total Share Change ’08 YTDNonresidential total $638 billion 100% +16% +13%Educational 96 15 +13 + 9Commercial 88 13 +16 + 2Highway & street 76 11 + 6 + 4Office 65 11 +19 +15Power 53 10 +34 +34Healthcare 43 6 +11 + 8Manufacturing 43 8 +20 +49Transportation 32 5 +16 +13Lodging 29 5 +58 +37Communication 27 4 +22 0Sewage & waste disposal
25 4 + 6 + 4
Other (amusement; water; safety; relig.; conservation): 9% of total
Source: Census
7
Leading segments in 2008 - 20092007 2008 Forecast
Segment Bil. $
Change
YTD 2008 2009
Power 53 +34%
+34%
+25 to +35%
i
Energy 17 +55 +23 +20 to +30
i
Hospitals 31 +14 + 4 +5 to +10 iHigher ed. 30 +13 +17 +10 to
+15i
BRAC and Homeland Security (part of several segments)
Source: Author
8
Weaker segments in 2008 - 2009
Source: Author
2007 2008 Forecast
Segment Bil. $
Change
YTD 2008 2009
Lodging 29 +58%
+37%
+25-30%
i
Office 65 +19 +15 +5 to 10
i
Commercial 88 +16 + 2
- 2 to +1
i
Primary/ Secondary
59 +15 + 7+3 to
+6 i
Highway 76 + 6 + 4 +1 to +3
0
9
Spending outlook for 2008 - 2009
Source: Census; Author
Actual Forecast
2007 2008 2009
Residential -19% -25 to -30% -2 to +2%
Nonresidential
+16% +6 to +11% -3 to -9%
Total -2.6% -6 to -10% -1 to -7%
But…materials, labor costs may still rise
10
Materials and components
• Higher increases for construction inputs than for overall economy:
12 mo. to: 12/04 12/05 12/06 12/07 9/08
Const PPI 9.1% 8.2% 4.6% 4.5% 13.1%
CPI-U 3.3% 3.4% 2.5% 4.1% 4.9%
• Cumulative change double the CPI since 12/03:
Const PPI 45%
CPI-U 19%
• Producer price index drivers: steel, gypsum, diesel, asphalt, concrete, copper, plastics, aluminum, wood
Source: BLS (CPI, PPI)
Change in Producer Prices for Construction vs. Consumer Prices, 2003 - 2008 (December 2003 = 100)
100
105
110
115
120
125
130
135
140
145
12/03 12/04 12/05 12/06 12/07
PPI for inputs to construction industries: 45%
Consumer price index: 19%
Source: BLS (CPI, PPI)
Sep. 2008
Change in Producer Prices for Construction Segments, 2003 - 2008 (December 2003 = 100)
100
110
120
130
140
150
160
170
180
12/03 12/04 12/05 12/06 12/07
Highway and street construction: 76%
Other heavy construction: 60%
Nonresidential buildings: 43%
Single-unit residential: 33%
Consumer price index: 19%
Source: BLS (CPI, PPI)
Sep. 2008
Change in Producer Prices for Major Construction Inputs, 2003 - 2008 (December 2003 = 100)
100
150
200
250
300
350
400
450
12/03 12/04 12/05 12/06 12/07
#2 diesel fuel: 249%
Copper and brass mill shapes: 143%
Steel mill products: 122%
Concrete products: 38%
Gypsum products: 22%
Consumer price index: 19%
Source: BLS (CPI, PPI)
Sep. 2008
Producer Price Indexes, 2007 vs. 2008
14
No. 2 Diesel FuelChange from 9/07-9/08: 39%
Steel Mill ProductsChange from 9/07-9/08: 38%
Asphalt Paving Mixtures & BlocksChange from 9/07-9/08: 51%
150
250
350
450
Jan Mar May Jul Sep Nov
2007
2008
150
200
250
300
Jan Mar May Jul Sep Nov
2007
2008
200
250
300
350
Jan Mar May Jul Sep Nov
2007
2008
Producer Price Indexes, 2007 vs. 2008
15
Gypsum ProductsChange from 9/07-9/08: 1.7%
Lumber and PlywoodChange from 9/07-9/08: -3.4%
Concrete ProductsChange from 9/07-9/08: 4.3%
Copper & Brass Mill ShapesChange from 9/07-9/08: -2.9%
150
200
250
300
Jan Mar May Jul Sep Nov
2007
2008
150
165
180
195
Jan Mar May Jul Sep Nov
2007
2008
350
400
450
500
Jan Mar May Jul Sep Nov
2007
2008
175
200
225
250
Jan Mar May Jul Sep Nov
2007
2008
16
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: 2-5%
Source: Author’s forecasts
17
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 6-8% PPI increases, higher spikes
Source: Author’s forecast
18
Construction jobs fall, but wages rise
-6.1%-0.7%
-6%
-4%
-2%
0%
2%
4%
6%
Total Private Construction
Ch
ang
e 9/
07 -
9/0
8
Employment Average Hourly Earnings
3.4%4.5%
-6%
-4%
-2%
0%
2%
4%
6%
Total Private Construction
Ch
ang
e 9/
07 -
9/0
8
Source: BLS
19
Change in construction employment, Aug. 07 – Aug. 08
11%11%
-28%
-11%
-2%
70
85
100
115
130
Aug-07 Aug-08
Nonres employment (BLS est.) Nonres spending
Res employment (BLS est.) Adjusted nonres employment
Residential spending
-2%
-11%
70
85
100
115
130
Aug-07 Aug-08
BLS Employment Change Adjusted Employment Change
Source: Author (from BLS, Census data)
20
Implications for 2008-09 wages
• Nonres employment actually includes another 523,000 ‘res’ specialty trades
• Thus, res change 8/07-8/08 was -28%, not -11%; nonres change was +11%, not -2%
• Biggest demand in ’08 will be for crane operators, other scarce skills
• Wages in ‘08 will rise +5 to +6% vs. +4.1% in ’07
• Nonres slump in ’09 will slow wages to +3-4.5%
Source: Author’s forecasts
21
State construction employment, 9/07 – 9/08
(U.S. total: -6.1%)
-17.2%
-13.7%
-13.5%
-12.4%
-10.6%
-20% -15% -10% -5% 0%
Ariz.
S.C.
Utah
Fla.
Ore.
1.3%
1.5%
2.3%
3.2%
4.5%
0% 1% 2% 3% 4% 5%
S.D.
Wyo.
D.C.
Texas
Okla.
5 Biggest Losses 5 Biggest Gains
Source: BLS
22
SD
NDMT
ID
NV
CA
OR
WA
UT
WY
NE
CO
OK
TXLA
FL
MN
IA
IL
ME
AZNM
KS
WI
OH
MINY
VT
IN
MO
AR
KY
TN
NH
PA
RI
MS AL
SC
NC
GA
VAWV
MA
CT
AK
HI
NJ
DE
MD
DC
State construction employment, 9/07 – 9/08
2.0% to 4.5%
-0.1% to -2.0%
0.0% to 1.9%
-2.1% to -17.2%
AK
23
Summary for 2008
• Nonres spending: +6 to +11% (led by energy, power, communications, hospitals, higher ed; weaker highway, retail, office, lodging)
• Res: -25 to -30% (no turnaround before ‘09)
• Total construction spending: -6 to -10%
• Materials costs: +6 to +8%
• Labor costs: +5 to +6%
24
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: +2 to +5%
• Labor costs: +3 to +4.5%
25
AGC economic resources (sign up by email to [email protected])• The Data DIGest: weekly one-page email
• PPI tables: emailed monthly
• Construction Inflation Alert
• State-specific emails (timing varies) and fact sheets: www.agc.org /factsheets
• Webinars/Audioconferences
Ken SimonsonChief Economist
Associated General Contractors of America
[email protected], 703-837-5313www.agc.org