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Construction Industry and Economic Outlook 2007-2008. Jeffry H. Taylor Chief Economist ABC National ABCC and CFMA Triangle Luncheon July 11, 2007. Macroeconomic trends and forecast. GDP GROWTH : gradual increase, but no return to trend (3%) until second half of 2008

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construction industry and economic outlook 2007 2008

Construction Industry and Economic Outlook 2007-2008

Jeffry H. Taylor

Chief Economist

ABC National

ABCC and CFMA Triangle Luncheon

July 11, 2007

macroeconomic trends and forecast
Macroeconomic trends and forecast
  • GDP GROWTH: gradual increase, but no return to trend (3%) until second half of 2008
  • Consumer spending, and to a lesser extent business investment, key to the economic recovery
  • Housing market will not add to GDP until 2008
  • Global economy is slowing, but remains healthy
macroeconomic trends and forecast3
Macroeconomic trends and forecast
  • INFLATION: Inflation is on the rise, but core inflation has likely peaked
  • Food, energy, medical care, and rents driving inflation higher this year
  • Moderate growth should allow for decline in the CPI in 2008
  • Energy costs and a tight labor market will continue to pressure prices
macroeconomic trends and forecast4
Macroeconomic trends and forecast
  • INTEREST RATES: The inversion of the yield curve is unraveling slowly
  • A flat yield curve will give way to a normalized yield curve in 2008
  • FOMC not likely to alter the Fed Funds rate; however an increase is possible
  • 2007: 3-mt-5.2%; 2-yt-5.1%; 10-yt-5.3%
  • 2008: 3-mt-4.7%; 2-yt-5.0%; 10-yt-5.1%
recent construction trends
Recent Construction Trends
  • May construction spending: $1.18 trillion up from $1.17 trillion in April, but down 2.8 percent from May 2006
  • Non-residential construction spending in May increased to $620.6 billion from $605.7 billion in April and is up 15.4 percent from May 2006
  • Residential construction spending has declined 17.3 percent over the past year to $556 billion
recent construction trends 2
Recent Construction Trends 2
  • All segments of non-residential construction spending rose in May and only two segments declined over the past 12 months (religious and conservation)
  • Commercial, office, educational, and highway/street spending very strong
  • Health care, lodging and power spending remains robust
construction spending forecast 2007
Construction Spending Forecast2007
  • Total spending in 2007 is expected to decline by 1 percent to $1.18 trillion
  • Non-residential buildings and non-residential structures spending are forecast to increase by 9 percent and 7 percent respectively this year
  • Residential construction spending is projected to decline by 10 percent in 2007
construction spending forecast 2008
Construction Spending Forecast2008
  • Total spending in 2008 is expected to rise by 6 percent to $1.26 trillion
  • Non-residential buildings and non-residential structures spending are forecast to increase by 8 percent and 7 percent respectively in 2008
  • Residential construction spending is projected to increase by 5 percent next year
labor issues
Labor Issues
  • Shortage of craft workers and project management: demographics and the evolution of the economy
  • Need to improve the image of the construction industry: education and outreach
  • Retention of employees: pay, benefits, training, workweek flexibility
  • Embrace diversity: both workers and supervisors
materials costs
Materials Costs
  • Global supply and demand trends are not favorable over the near-term: expect significant volatility
  • Construction segment PPI trends (May): overall 0.9%/4.1% y/y; construction inputs 0.8%/3.3% y/y; highway and street 1.9%/5.5% y/y; other heavy construction 1.5%/4.9% y/y; multi-family residential 0.4%/3.2% y/y; commercial building 0.8%/3.2% y/y ; new schools 0%/13.3%; new warehouses; 0%/6%; new office 0%/7.3%
materials costs 2
Materials Costs2
  • Crude goods (16% YTD) and energy inputs placing significant upward pressure: not expected to abate over the near-term
  • Fuel prices off highs but: crude oil up 16% YTD; and #2 diesel up 25% YTD
  • Recent commodity PPI increases over the past year (May): asphalt 12%; iron and steel scrap 29.5%; copper scrap 32%; steel mill products 17%; concrete products 4.6%; construction sand/gravel 9.1%
immigration reform
Immigration Reform
  • Immigrants are a growing and substantial segment of the labor force: currently 23 million and accounted for 50 percent of the labor force growth over the past decade
  • Immigration, legal and illegal, have allowed for the growth in construction employment
  • Need to deal with the illegal immigrants presently in the workforce (12 million)
  • Visa approvals should be more job-related and less family-related
  • Critical for economic growth: tax revenues, future homeowners, skilled labor base (H1 Visa program expansion)
productivity
Productivity
  • Due to increased competition, productivity increases are critical
  • Worry about what is under your influence and think like a business person, not just as a contractor
  • Recruit and maintain skilled supervisors and workers, apply technology, innovate, and work hard
  • Develop metrics (measures) to determine productivity
construction union membership trends
Construction Union Membership Trends
  • Since 2000, the number of construction industry union members remained at approximately 1 million
  • However, union membership as a percent of the total construction workforce declined significantly over the period
  • 2000: 18.3 percent
  • 2006: 13.0 percent
region 4
REGION 4
  • Union membership decreased to 48,400 in 2006 from 75,600 in 2000
  • Tennessee’s union membership declined by 85 percent and Georgia declined by 36 percent
  • Union membership decreased in all states except for Florida and South Carolina
  • Union membership in Florida represented 45 percent of the region’s total union membership in 2006
globalization of construction
Globalization of Construction
  • Globalization is where goods, services, workers, technology, ideas, and resources migrate to where they can work most efficiently and profitably
  • Pay more attention to global economic and political trends
  • Consider recruiting foreign nationals, working with foreign companies, and forging cross-border supply chains
construction industry and economic outlook 2007 200827

Construction Industry and Economic Outlook 2007-2008

Jeffry H. Taylor

Chief Economist

ABC National

ABCC and CFMA Triangle Luncheon

July 11, 2007

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