Podcast #2. February 2021 Ed Sullivan, SVP & Chief Economist
Transcript of Podcast #2. February 2021 Ed Sullivan, SVP & Chief Economist
Presentation Focus
1. Macroeconomic Data & Covid-19 Relief Impacts
2. IHME Covid-19 Projections
3. The Vaccine Scenario & Achieving Herd Immunity
4. Inflation Threats
5. Winter 2020-2021 Segment Projections
Unemployment ClaimsNew, Weekly
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
August 4th: 1,181 Deaths Inflection Point:
November 15th: 1,159 DeathsLow Point:
October 17th: 706 Deaths
Current 7 Day Moving Average: 3,183 Deaths
Note: IHME expects daily death rate will remain near current levels
through mid-February.
This is followed by a 1,000 decline in the rate each
subsequent month through April.
This suggests Covid-19 remains an elevated drag on economic
recovery
“Low Wage” Unemployment Exceeds 20%
Consumer SentimentComposite, University of Michigan
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40
60
80
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120
Covid-19 ImpactFebruary 101.
April 71.
Current: 79Lingering Covid-19
levels has prevented a meaningful recovery.
Note: With high sustained Covid-19 death rates
expected through April, consumers will remain cautious.
Consumer spending accounts for 2/3 of every $ generated in US GDP.
Slow growth and disappointing rates of improvement will characterize the economy.
At least through the first half of 2021.
Back to Normal IndexMoody’s-CNN Survey 100=March 1st
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1-Mar-20 1-Apr-20 1-May-20 1-Jun-20 1-Jul-20 1-Aug-20 1-Sep-20 1-Oct-20 1-Nov-20 1-Dec-20 1-Jan-21
Current-18%
-40%
37 monthly & high frequency variables included in the index from home prices, rail traffic, business confidence, seated diners, etc.
August 15th:-21%Key Point.
Covid Relief programs prevent the economy from slipping into further decay. They enable a recovery. By themselves, they are not expected
to generate growth.
The Next Round of Covid-19 Relief: Key Spending
• Direct Payments• State Aid• Unemployment Sweetener• Re-open Schools• Child Tax Credit• Underfunded Pension• Covid-19 Testing• FEMA Disaster Support• Minimum Wage• Metro Transit
$422 Billion$350$246$129$109$82$49$45$47$28
IHME Daily Death Rate Projections7 Day Moving Average
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500
1000
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3500
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4500 CurrentCurrently, IHME projects that the daily death rate
will not decline to past peak (Mid-
April 2020) levels until early March.
Revised IHME Projections
Vaccine Impact on the EconomyOnce the Vaccine is Mass Distributed….and herd immunity levels reached…..
It will:
• Result in a dramatic surge in consumer confidence.
• Encourage a return to many, but not all, Pre-Covid activities• Dining, movies, shopping, face-to-face interactions.
• Business will reopen, new businesses will emerge to fill voids created by the virus.• Perhaps encouraged by SBA support
• Investment uncertainty will decline.
• Economy will expand rapidly.
• Jobs growth will be strong.
This is largely based on consumers returning to pre-Covid patterns.
Given the severity and duration of the disruption…restoration of consumer patterns may occur over several quarters to materialize…
The process begins with consumers sense of safety and the achievement of herd immunity.
US Vaccine Supply
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Q 4 2020 Q1 2021 Q2 2021 Q3 2021Old Production New Production
Notes: Q 4 Performance: Production-to-Contract: 67%, Doses Delivered-to-Vaccination: 33%Forward Assumptions: Production-to-Contract: 85%, Doses Delivered-to-Vaccination: 85%
Notes: Pfizer announced dramatic reduction in
processing from start to vial ready from 110 days to 60 days. This essentially increases Pfizer
production/supply by 45%.
Johnson & Johnson announced it will begin production in Q2.
Daily Rate of Vaccinations
0.0
0.5
1.0
1.5
2.0
2.5
3.0
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Q 4 2020 Q1 2021 Q2 2021 Q3 2021
Notes: With the news of increased vaccine production, the issue begins to shift from vaccine supply to convincing
enough of the population to get the vaccination.
Million Vaccination Doses Daily
Implied Herd Immunity Dates:
70% August 2nd
75% August 12th
80% August 22nd
85% September 2nd
Winter Forecast Assumption:
White Knight shows up mid-to-late third quarter, compared to early third quarter
assumed in the Winter Forecast.
Growing Inflation Concerns
2020
• Global Pandemic Unfolds• Oil Prices Drop• Massive Unemployment
Materializes• Consumer Demand Contracts• Capacity Utilization Eases• Inflationary Expectations are
Reduced• Federal Reserve
Accommodative.• US Covid-19 Vulnerability
Prompts Weakening of Dollar
• Inflation Declines an Estimated 50 Basis Points
• Inflation Rate: 1.3%
2021 2022-23
• Global Increase Access to Vaccine Materializes in 2nd Half 2021.
• Consumer Demand Increase• Capacity Utilization Rises But Slack
Remains.• High Inventories, Increased Iran Supply,
Potential OPEC Production Significantly Neutralize Demand Pull on Oil Prices
• Unemployment Reduced to 6% by Year End – Still High and Holds In-Check Wage Increases
• Minimum Wage Slowly Phased In. • Inflationary Expectations Rise Modestly. • Federal Reserve Remains Accommodative.• Reduced US Covid-19 Vulnerability Prompts
a modest Strengthening Weakening of Dollar.
• Inflation Increases an Estimated 80 to 90 Basis Points – From Low Level.
• Inflation Rate: 2.0%
• Much of Pandemic Has Passed.• Pent-Up Demand Is Released.• Unemployment Declines Below 5%.• Phase in of Minimum Wage Limits
Impact on Inflation.• Capacity Slack is Reduced.• Inflationary Expectations Rise More
Aggressively.• Federal Reserve Becomes Mildly
Restrictive.• US Dollar Strengthens.
• Inflation Increases an Estimated 50 to 70 Basis Points
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Residential Cement Consumption Mortgage Interest Rates% Average SF Monthly Payment
950
1,000
1,050
1,100
1,150
1,200
1,250
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2017 2018 2019 2020 2021 2022 2023 2024 2025
Residential Cement Consumption Residential Cement ConsumptionMetric Tons
0%
1%
2%
3%
4%
5%
2,017.00 2,018.00 2,019.00 2,020.00 2,021.00 2,022.00
Residential Cement Consumption Growth%, Y-O-Y
-30%
-25%
-20%
-15%
-10%
-5%
0%
Total
Nonresidential ConstructionReal PIP, Y-O-Y Change
IndustrialHotel
Office
Scarring & Bankruptcies
Vacancy Rates Increase
Sq Feet Vented onto MarketNOI Declines
Banks Tighten Lending
Standards
Nonresidential Construction
Decline
Working Capital Factor:
The longer below “normal” economic conditions persist – the more pressure occurs on
working capital and ability to stay open.
Structural Factors Contribute to Vacancy
Rates:
• Work-At-Home• E-Retail
• Virtual Meeting• E-Learning
• Urban Trend Slows
Bank Lending Officer Survey:
More Banks Tightening Lending
Standards Since 2008
Nonresidential Recovery Process
Nonresidential is not expected to contribute to growth until 2023
Revenue Decline
Less than 2% Decline
6% Decline or More
State Revenues: 2021
4.1 to 5.9% Decline
2.1 to 4% Decline
ME
RI
MA
VTNH
AL GA
SC
TN
FL
MS
LA
TX
OKNM
KS
MN
IA
MO
AR
WY
CO
ND
SD
NE
WA
ID
MT
OR
NVUT
AZ
CA
WI
ILIN
MI
OH
WVVA
NC
MD
DE
PA
NY
CT
NJ
• Depressed economic activity reduces tax collections.
• In context of Balance Budget Amendments, states either raise revenue collections via taxes or cut spending.
• Tax increases are out given the economic distress.
• Entitlement programs and support are least likely to be cut.
• Public construction programs become vulnerable.
• Without specific state relief in the Covid-19 Federal support program – public spending becomes a key downside risk factor for 2021 cement consumption.
• PCA Winter forecast positions public so that up and downside risks are balance.
• Currently, the next Federal Covid-19 support program may direct $300 Billion for state support. This represents upside risk to the current forecast.
Biden Plan & Moving Forward Act
PCA combines information from the Biden infrastructure plan and the Moving Forward Act passed by the House to garner potential
details. From there, cement intensities are assigned.
Very rough estimates suggest massive - UNPRECEDENTED
increases in annual cement consumption beginning in 2023.
The “Face Value” plan is more than 8 times the size of PCA’s
“placeholder of $235 billion over 10 years.
Key Point.The proposed program, as we see
it, is more massive than any previous infrastructure program.
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
2017 2018 2019 2020 2021 2022 2023 2024 2025
Total Cement Consumption Total Cement ConsumptionMetric Tons
-1%
0%
1%
2%
3%
4%
5%
2017 2018 2019 2020 2021 2022 2023 2024 2025
Cement Consumption Growth%, Y-O-Y
Residential Strength Continues.Nonresidential weakness.Public reflects State fiscal exposure
2022-2023 Growth Acceleration reflects a Biden Infrastructure “Placeholder”
of $260 Billion Ten Year Program.