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Construction Spending, Labor & Materials Outlook

Construction Spending, Labor & Materials Outlook. AGC of California Board of Directors Half Moon Bay, CA, January 22, 2015 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org. Construction spending & employment, 2006-14. 11/14: $975 bil. 11/14: 6,109,000.

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Construction Spending, Labor & Materials Outlook

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  1. Construction Spending, Labor & Materials Outlook AGC of California Board of Directors Half Moon Bay, CA, January 22, 2015 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

  2. Construction spending & employment, 2006-14 11/14: $975 bil. 11/14: 6,109,000 12-month % change, Jan. 2006-Nov. 2014 12-month % change, Jan. 2006-Nov. 2014 Source: BLS, Census Bureau construction spending reports 2

  3. Construction is growing, but unevenly 3 trends helping many sectors and regions: • ‘Shale gale’—continuing despite oil price plunge • Panama Canal expansion • Residential revival, especially multifamily 3 trends holding down construction growth: • Government spends less on schools, infrastructure • Consumers switch from stores to online buying • Employers shrink office space per employee Source: Author

  4. One (or many) bright spot(s): the shale ‘gale’ Bakken Marcellus Niobrara Haynesville Permian Eagle Ford • Source: U.S. Energy Information Administration

  5. Shale’s direct and indirect impacts on construction • Onsite: Each well requires access road, site prep, pad, storage pond, support structures, pipes • Nearby: Products, water require trucking, rail, pipeline, processing • Local spending by drilling firms, workers, royalty holders • Upstream: orders for fracking sand, rigs, compressors, pumps, pipe, tanks, trucks, railcars, processing facilities • Downstream: Petrochemical, power, steel plants; LNG export terminals, fueling stations; NG-powered vehicles • Losers: coal; maybe wind, solar, nuclear & their suppliers Source: Author

  6. U.S. ports affected by Panama Canal expansion Seattle & Tacoma Columbia River at Mouth, OR & WA NY-NJ Baltimore Oakland Norfolk Los Angeles/ Long Beach San Diego Charleston Savannah Jacksonville Mobile New Orleans Houston Miami • Source: U.S. Army Corps of Engineers

  7. Panama Canal expansion’s impacts on construction • Ports: investing in dredging, piers, cranes, land access • Nearby: Storage, warehouse, trucking, rail facilities • Bridge, tunnel, highway improvements • Inland: possible changes in distribution, manufacturing Source: Author

  8. Private residential spending: MF still soaring, SF slowing Private residential spending, Jan. 2011-November 2014 (billion $, SAAR) Multifamily (MF) Single family (SF) Improvements 12-month % change, Jan. 2011-November 2014 Multifamily: 27% Single family: 13% Total: -1% Improvements: -25% Source: Census Bureau construction spending reports

  9. Housing outlook • SF: rising for now but tight credit, fear of lock-in, demographic shifts may limit increases • MF: Upturn should last through 2015 • Vacancy rates near multi-year lows in most cities • Preference for urban living adds to demand • Condos have been slower to revive than rentals • Government-subsidized market remains weak • Improvements: down in ‘14 but should track SF sales Source: Author

  10. Nonres segments: 2014 year-to-date & 2015 forecast • Source: Census Bureau construction spending report; Author’sforecast

  11. Construction spending: industrial, heavy (billion $, SAAR) Power (89% private) Manufacturing (99% private) Latest 12-mo. change: 21% Latest 12-mo. change: -5% (private -4%; public -15%) Transportation facilities (72% public) Public & private transportation facilities Public Private Latest 12-mo. change: 5% Latest 12-mo. change: private 6%; public 5% Source: Census Bureau construction spending reports

  12. Construction spending: public works (billion $, SAAR) Highways (99.7% public) Sewage/waste (99% public) Latest 12-mo. change: 6% Latest 12-mo. change: 14% Amusement & recreation (54% public) Water supply (96% public) Latest 12-mo. change: -2% Latest 12-mo. change: 5% Source: Census Bureau construction spending reports

  13. Construction spending: institutional (private + state/local) Total education (79% public) Education (state & local K-12, higher; private) S/L preK-12 S/L higher ed Private Latest: state/local preK-12 0%, higher 8%; private 7% Latest 12-mo. change: 3% Total healthcare (74% private) Hospitals (private, state & local) Private S/L Latest 12-mo. change: private -10%; state & local -6% Latest 12-mo. change: -8% Source: Census Bureau construction spending reports

  14. Construction spending: developer-financed (billion $, SAAR) Retail (private) Office (83% private) Total Private Public Latest 12-mo. change: 15% (private 18%; public 2%) Latest 12-mo. change: -1% Warehouse (private) Lodging (private) Latest 12-mo. change: 11% Latest 12-mo. change: 58% Source: Census Bureau construction spending reports

  15. Major locations for data centers Seattle Portland Minneapolis Boston Northern New Jersey Des Moines Philadelphia Chicago Salt LakeCity Denver Omaha Silicon Valley Las Vegas Northern Virginia St. Louis Colorado Springs Kansas City Southern California Phoenix Atlanta Dallas Northern Florida Houston • Source: www.DataCenterKnowledge.com, from CBRE, ASHRAE

  16. State construction employment change (U.S.: 3.6%) 11/13 to 11/14: 38 states + DC up, 12 down Over -10% -5.1% to -10% -0.1% to -5% 0% 0.1% to 5% 5.1% to 10% Over 10% 9% 4% -2% 2% NH1% 3% 16% 1% 4% 7% 1% VT 2% 0.5% -1% 6% 5% 3% 5% MA2% 10% -5% -1% 6% 3% 5% -11% -0.1% 1% CT3% RI4% 2% -4% -4% 5% DE4% NJ-5% 1% 7% 2% 8% 8% 1% 2% 6% -8% MD 1% DC 6% 4% Shading based on unrounded numbers 9% -2% HI-2% • Source: BLS state and regional employment report

  17. Construction Employment in United States, 1/90-11/14 (seasonally adjusted; shading = recessions) Peak: Apr. ‘06 -21% vs. peak Construction Employment in California, 1/90-11/14 (seasonally adjusted; shading = recessions) Peak: Feb. ‘06 -27% vs. peak • Source: BLS

  18. Construction employment change from one year earlier 1/08-11/14, seasonally adjusted Employment change for CA construction segments 1/08-11/14, not seasonally adjusted Source: BLS

  19. Construction employment change by CA metro, 11/13-11/14 28 26 25 17 27 Over 10% 7 22 6 5.1% to 10% 23 24 21 19 20 0.1% to 5% 16 18 15 14 0% 13 10 -0.1% to -5% 12 11 9 8 -5.1% to -10% 5 Over -10% Shading based on unrounded numbers 4 3 1 2 • Source: BLS state and regional employment report

  20. Change in construction (un)employment, 12/10-12/14 • Construction unemployment fell sharply in past 4 years • But industry employment rose much less • Thus, workers left for other sectors, school, retirement Unemployment rates(Not seasonally adjusted, Dec. 2010-Dec. 2014) Change in unemployment & employment (Not seasonally adjusted, Dec. 2010-Dec. 2014) 369,000 Workers who have left industry • Source: Author, from BLS

  21. 12-month change in construction employment and unemployment, Jan. 2011-2014 (not seas. adjusted) Employment gain/loss(-) Unemployment decrease

  22. Hardest positions to fill(% of respondents who are having trouble filling) • Source: AGC Member Survey, Sept. 2014

  23. Construction prices, materials costs, average hourly earnings (AHE) Source: Bureau of Labor Statistics: PPI, AHE; Federal Highway Administration: National Highway Construction Cost Index

  24. Producer price indexes for key inputs, 12/10-11/14 (Dec. 2010=100) Steel mill products Copper & brass mill shapes 12/10 12/10 Latest 1-mo. change: 0.03%, 12-mo.: -3% Latest 1-mo. change: -0.3%, 12-mo.: 2% Gypsum products Lumber & plywood 12/10 12/10 Latest 1-mo. change: -1.0%, 12-mo.: 4% Latest 1-mo. change: 0.3%, 12-mo.: 11% Source: Author, based on BLS producer price index reports

  25. Producer price indexes for key inputs, 12/10-11/14 (Dec. 2010=100) Diesel fuel Concrete products 12/10 12/10 Latest 1-mo. change: 0.7%, 12-mo.: 4% Latest 1-mo. change: -4.2%, 12-mo.: -11% Plastic construction products Asphalt paving mixtures & blocks 12/10 12/10 Latest 1-mo. change: 0.0%, 12-mo.: 2% Latest 1-mo. change: -0.1%, 12-mo.: 2% Source: Author, based on BLS producer price index reports

  26. AGC members’ expectations for 2015 Net % who expect dollar volume of projects to be higher 33% Retail/warehouse/lodging 26% Manufacturing 25% Private office 24% Water/sewer; also Energy 20% Hospital 17% Power 16% Highway 15% Higher education 13% Other transportation 8% K-12 school 5% Public building -6% Marine construction -16% Direct federal construction Source: AGC Construction Outlook Survey, Jan. 2015 (912 total responses)

  27. Trends: 2015-2017 • Total construction spending: +6% to +10% per year • less SF housing, retail; flat public spending • new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults • Materials costs: 0 to +3% (similar to CPI); rare spikes • Labor costs: +2.5% to + 5% • Labor supply: widespread shortages possible due to retirements, competition from other sectors, fewer vets Source: Author

  28. Summary for 2013, 2014-17 Source: 2013-14: Census, BLS; 2014-17: Author’s ests.

  29. AGC economic resources(email simonsonk@agc.org) • The Data DIGest: weekly 1-page email (subscribe at www.agc.org/datadigest) • monthly press releases: spending; PPI; national, state, metro employment • state and metro data, fact sheets • website: http://www.agc.org/Economics • webinars, surveys

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