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Good News—The Recession Is Over! (but not for construction). The Houston Economics Club April 15, 2009 Ken Simonson, Chief Economist AGC of America simonsonk@agc.org. Current economic influences. Credit market freeze affecting private, state and local borrowers

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good news the recession is over but not for construction

Good News—The Recession Is Over!(but not for construction)

The Houston Economics Club

April 15, 2009

Ken Simonson, Chief Economist

AGC of America

simonsonk@agc.org

current economic influences
Current economic influences
  • Credit market freeze affecting private, state and local borrowers
  • Weak demand for income-producing properties
  • Falling state spending
  • No job growth, rising unemployment
  • Stimulus (details: www.agc.org/stimulus)

Source: Author

economic stimulus package
Economic Stimulus Package

Total of $787 billion in spending and tax cuts

  • $308 billion in appropriated spending
  • $269 billion in direct spending (refundable portion of tax credits, unemployment benefits, Medicaid reimbursement to states, etc.)
  • $211 billion in tax cuts

Source: Author

economic stimulus package1
Economic Stimulus Package

$49 billion

up to $38 billion

$30 billion

$21 billion

Source: Author

stimulus tax provisions affecting construction
Stimulus tax provisions affecting construction
  • 1-year delay (to 2012) in 3% withholding on gov. contracts
  • Increased expensing
  • Net operating loss: 5 year carryback of NOL for small business (<$15 mil. in gross receipts)
  • Qualified school construction bonds
  • “Build America” bonds
  • Bonds for “recovery zones,” tribal areas, renewable energy, energy conservation
  • Modified renewable energy, conservation credits

Source: Author

stimulus timing strings
Stimulus timing, strings
  • Timing – highways
    • States must obligate ½ of their total by June 30
    • States must obligate remainder by Feb. 17, 2010
  • Timing – other construction: language varies
  • Conditions
    • Davis-Bacon
    • Buy American
    • No E-Verify requirement or broad-based FAR
    • No project labor agreement mandate, but…

Source: Author

the shifting construction market construction spending seasonally adjusted annual rate
The shifting construction market (construction spending, seasonally adjusted annual rate)

(-0.2%)

(+3%)

(-30%)

Source: Census Bureau

housing outlook
Housing outlook
  • SF: No relief yet for decline in permits, starts or spending, but sales could pick up by mid-‘09
  • Starts won’t improve until late-‘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

spending outlook for 2009
Spending outlook for 2009

Source: Census (2008); Author (2009)

materials and components
Materials and components

Source: BLS (CPI, PPI)

change in producer prices for construction vs consumer prices 2003 2009 december 2003 100
Change in Producer Prices for Construction vs. Consumer Prices, 2003 - 2009 (December 2003 = 100)

Mar. 2009

Source: BLS (CPI, PPI)

producer price indexes 2007 2009
Producer Price Indexes, 2007 - 2009

1-month: -0.6%12-month: -1.9%

1-month: -0.9%12-month: -7.0%

Inputs to construction industries

Highway & street construction

1-month: -0.8%12-month: -5.8%

1-month: -0.6%12-month: -2.6%

Other heavy construction

Nonresidential buildings

producer price indexes 2007 20091
Producer Price Indexes, 2007 - 2009

1-month: -8.9%12-month: -62.5%

1-month: -0.1%12-month: -14.6%

No. 2 Diesel Fuel

Steel Mill Products

1-month: -1.9%12-month: 17.4%

1-month: -0.9%12-month: 3.6%

Asphalt Paving Mixtures & Blocks

Concrete Products

producer price indexes 2007 20092
Producer Price Indexes, 2007 - 2009

1-month: -0.8%12-month: -37.0%

1-month: -2.9%12-month: -22.3%

Copper & Brass Mill Shapes

Aluminum Mill Shapes

1-month: 0.0%12-month: 9.0%

1-month: -2.5%12-month: -9.6%

Gypsum Products

Lumber and Plywood

outlook for materials in 09 compared to 08
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: -4% to 0%

Source: Author’s forecasts

outlook for materials beyond 2009
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 to 8% PPI increases, higher spikes

Source: Author’s forecast

slide21

State Construction Employment2/08 to 2/09 (U.S. -11.1%)

WA-11%

ID-14%

MT-14%

ME -9%

NH-15%

MN -16%

ND-0.5%

OR-17%

VT-22%

WI

-11%

NY

-5%

MI

-10%

SD

-5%

MA-12%

WY

-4%

CA -19%

NV-18%

PA

-6%

IA

-3%

RI-16%

UT-16%

NE

-1%

OH-14%

IL

-11%

IN

-10%

NJ-12%

CO

-12%

WV

-4%

CT-19%

MO-7%

VA- -14%

KS

-6%

KY -15%

MD-13%

DC-5%

AZ-27%

NC -17%

NM-9%

TN-16%

OK +1%

DE-13%

TX

-6%

AR+1%

SC- -9%

GA-13%

AL

-15%

MS

-7%

LA +8%

0.5 to 8.2%

FL -21%

AK -1%

-11.0 to 0%

HI-10%

-11.6 to -26.8%

summary for 2009
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: -4% to 0%
  • Labor costs: +3% to +4%

22

agc economic resources sign up by email to simonsonk@agc org
AGC economic resources (sign up by email to simonsonk@agc.org)
  • The Data DIGest: weekly one-page email
  • PPI tables: emailed monthly
  • State-specific stimulus estimates and fact sheets: www.agc.org/stimulus
  • Webinars/audioconferences
  • Member emails on stimulus jobs, credit market
slide24

Ken SimonsonChief EconomistAssociated General Contractors of Americasimonsonk@agc.org, 703-837-5313www.agc.org