Construction & Materials Outlook

1. Construction & Materials Outlook November 6, 2008 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org www.agc.org

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 September 2007 –September 2008: -7%) Source: Census (construction spending)

4. Single-family (SF) vs. multifamily (MF) September construction spending (value put in place): SF: -4.7% vs. August, -41% vs. 9/07 MF: +2.7% vs. August, -1.7% vs. 9/07 Improvements: +2.4% vs. August, -6.5% vs. 9/07 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 4 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 5 Source: Author

6. Nonres ’07 totals, change; ’08 YTD change Source: Census

7. Leading segments in 2008 - 2009 Source: Author

8. Weaker segments in 2008 - 2009 Source: Author

9. Spending outlook for 2008 - 2009 Source: Census; Author

10. Materials and components Source: BLS (CPI, PPI)

11. Change in Producer Prices for Construction vs. Consumer Prices, 2003 - 2008 (December 2003 = 100) Sep. 2008 Source: BLS (CPI, PPI)

12. Change in Producer Prices for Construction Segments, 2003 - 2008 (December 2003 = 100) Sep. 2008 Source: BLS (CPI, PPI)

13. Change in Producer Prices for Major Construction Inputs, 2003 - 2008 (December 2003 = 100) Sep. 2008 Source: BLS (CPI, PPI)

14. Producer Price Indexes, 2007 vs. 2008 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% 14

15. Producer Price Indexes, 2007 vs. 2008 Gypsum ProductsChange from 9/07-9/08: 1.7% Lumber and PlywoodChange from 9/07-9/08: -3.4% Copper & Brass Mill ShapesChange from 9/07-9/08: -2.9% Concrete ProductsChange from 9/07-9/08: 4.3% 15

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 to +2% 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 Employment Average Hourly Earnings Source: BLS

19. 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

20. State construction employment, 9/07 – 9/08(U.S. total: -6.1%) 5 Biggest Losses 5 Biggest Gains 20 Source: BLS

21. State construction employment, 9/07 – 9/08 WA NH MT ND ME VT MN OR ID MA WI NY SD WY MI RI CT PA NV IA NE NJ OH IL UT IN DE CO WV VA CA KS MO KY MD NC TN AZ DC OK NM AR SC AL GA MS LA AK AK TX FL HI 21

22. 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%

23. 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 +2% Labor costs: +3 to +4.5% 23

24. AGC economic resources (sign up by email to simonsonk@agc.org) • The Data DIGest: weekly one-page email • PPI tables: emailed monthly • State-specific emails (timing varies) and fact sheets: www.agc.org /factsheets • Webinars/Audioconferences