Construction Materials Outlook WSU Economic Outlook Conference Wichita

Construction & Materials Outlook WSU Economic Outlook Conference Wichita, October 7, 2010 Ken Simonson, Chief Economist AGC of America simonsonk@agc. org

Current economic influences on construction • GDP, personal income: steady but modest gains • No upturn in office, retail, warehouse rent/occupancy • Loans for developers remain tight-to-unavailable • State/local tax shortfalls deeper spending cuts • Stimulus (details: www. agc. org/stimulus) Source: Author 2

Construction-related stimulus funding (~$135 bil. ) Billion $ $49 billion $50 $2 airports, ports $40 $18 transit/rail ($8 “high-speed”) $30 $28 Highway $6 other federal $6 GSA $7 DOD $0 Transportation Source: Author $0 to $9 discretionary $8 housing $20 $10 up to $35 billion Buildings $30 billion $5 weatherization $21 billion $6 energy grants $7 wireless/ broadband $11 electric grid ($4. 4 “smart grid”) $5 Corps $7 water/ wastewater $6 waste cleanup Energy/ technology Water/ environment 3

Stimulus timing, strings • Timing – road $ spent fast; other $ delayed due to: • New programs had to be designed • Agencies didn’t have enough personnel • Buy American terms stopped use of funds • Other factors • Davis-Bacon • Reporting requirements: jobs, executives’ pay Source: Author 4

’ 09 -’ 10 stimulus tax changes affecting: - contractors’ cash flow • 5 -year carryback of ’ 08, ‘ 09 net operating losses • 6. 2% payroll tax credit for workers hired 3/18 -12/31/10 - demand for construction • Build America bonds: cheaper financing; more projects? • $8000 homebuyer tax credit: mixed impact Source: Author 5

Economic impact of nonresidential construction • Jobs: 28, 500 per $1 billion • 1/3 direct, onsite construction • 1/6 indirect (quarries, mfg. , services) • 1/2 “induced” by spending from higher earnings of construction, indirect workers and owners • GDP: $3. 4 billion • Personal Earnings: $1. 1 billion Source: Prof. Stephen Fuller, George Mason University 6

Construction spending, level and 12 -month change Seasonally adjusted annual rate (SAAR), 2008 -August 2010 850. 000 1, 150 1150 750. 000 1, 050 1050 650. 000 950 (Billion $, SAAR) ▬ Total Construction 850 550. 000 850 450. 000 750 350. 000 650 250. 000 550 150. 000 450 2008 ($812 billion, -10%) ▬ Public ($314 billion, -1%) ▬ Private Nonresidential ($260 billion, -24%) ▬ Private Residential 2009 Source: Census Bureau construction spending reports ($238 billion, -2%) 2010 7

Single- vs. multi-family, 2008 -10, seasonally adjusted annual rate (SAAR) Thousands Construction spending (2008 -August 2010) $240 ▬ ▬ ▬ $160 $80 Single-family Improvements Multi-family 12 -month 4% 4% -52% $0 2008 2009 2010 Building permits and starts (2008 -August 2010) 800, 000 Permits ▬ ▬ 600, 000 400, 000 Single-family Multi-family 12 -month -17% 31% Starts --- 200, 000 0 2008 2009 Single-family -9% Multi-family 55% 2010 Source: Census Bureau construction spending, housing starts reports 8

Housing outlook • SF: starts, permits should rise in rest of ’ 10 & ’ 11 • MF: Close to bottom; no big gains likely until ’ 11 - Rental demand should rise as impacts fade from renters losing jobs or using first-time homebuyer credit - Supply swelled by owners and banks who are trying to rent out houses and condos - Banks remain unwilling to lend to developers Source: Author 9

Nonres totals (billion $, SAAR), share & 12 -month change 8/10 Total Share 12 -month - 14 % Nonresidential $563 billion 100 % - 14 Educational 87 15 - 12 Power 85 15 +1 Highway and street 84 15 - 10 Health care 40 7 - 21 Commercial 39 7 - 5 Transportation 39 7 - 35 Manufacturing 38 7 - 31 Office 35 6 + 18 Sewage and waste disposal 28 5 - 8 Communication 18 3 - 4 Amusement and recreation 18 3 Other (water, public safety; lodging; conservation; religious): 9% of total Source: Census Bureau construction spending report 10

Construction spending: industrial, heavy (billion $, SAAR) Power (84% private) Manufacturing (98% private) 1 -month change: -2. 6%, 12 -month: -12% 1 -month change: 0. 0%, 12 -month: -35% $97 $65 $89 $55 $81 $45 $73 2008 $35 2008 2009 2010 Communication (99. 8% private) 1 -month change: -1. 8%, 12 -month: -8% 2010 Amusement & recreation (37% private) 1 -month change: 0. 9%, 12 -month: -4% $31 $24 $26 $21 $18 $16 2008 $15 2008 2009 2010 Source: Census Bureau construction spending reports 2009 2010 11

Construction spending: public works (billion $, SAAR) Highways (99. 7% public) Sewage/waste (99% public) 1 -month change: 5. 1%, 12 -month: 1% 1 -month change: 4. 3%, 12 -month: 18% $87 $29 $83 $27 $79 $25 $75 2008 $23 2008 2009 2010 2009 Transp. facilities (public) Water (96% public) 1 -month change: 2. 3%, 12 -month: -4% 1 -month change: 2. 7%, 12 -month: 7% $36 $19 $32 $17 $28 $15 $24 2008 $13 2008 2009 2010 Source: Census Bureau construction spending reports 2009 2010 12

Construction spending: institutional (private + state/local) Higher education (25% private) Pre. K-12 ed. (4% private) 1 -month change: 5. 2%, 12 -month: -6% 1 -month change: -4. 3%, 12 -month: -18% $39 $66 $36 $58 $33 $50 $30 2008 $42 2008 2009 2010 2009 Hospitals (82% private) Public safety 1 -month change: -1. 7%, 12 -month: -9% 1 -month change: 4. 3%, 12 -month: -8% $35 $16 $32 $14 $29 $12 $26 2008 $10 2008 2009 2010 Source: Census Bureau construction spending reports 2009 2010 13

Construction spending: developer-financed (billion $, SAAR) Nonautomotive retail Office (private) 1 -month change: -2. 9%, 12 -month: -23% 1 -month change: -0. 1%, 12 -month: -40% $60 $65 $45 $50 $35 $15 2008 $20 2008 2009 2010 Warehouses Lodging (private) 1 -month change: 0. 8%, 12 -month: -41% 1 -month change: -1. 5%, 12 -month: -54% $19 $42 $14 $30 $9 $18 $4 2008 2009 2010 Source: Census Bureau construction spending reports $6 2008 2009 2010 14

Construction employment, wages, costs and output prices Construction vs. all other nonfarm empl. 12 -mo % change 1% 0% -1% -2% -3% 2008 2009 4 -quarter % change, 2008 -2 Q 2010 (2 Q 09 -2 Q 10: 1. 0%) 6% 4% 2% 0% 2008 2009 20% 10% 0% -10% 2010 Employment cost index for construction 4 -qtr % change 12 -month % change, 2008 -August 2010 (8/09 -8/10: 3. 6%) 2010 2008 2009 2010 PPI for construction inputs, finished buildings 12 -mo % change 1 -mo % change ▬ Const. 0. 3% (+19, 000) ▬ All other -0. 1% (-73, 000) Producer price index for construction inputs 12 -month % change, August 2009 -August 2010 4% 2% 3. 6% 0% 0. 1% 0. 3% 0. 2% New indus bldgs New ware office house -0. 2% -2% Inputs to New constr school industries Source: BLS employment, employment cost index, producer price index (PPI) 15

Producer price indexes, 1/08 -8/10 No. 2 diesel fuel Steel mill products 1 -month change: 5. 8%, 12 -month: 13. 2% 1 -month change: -3. 9%, 12 -month: 17. 1% 450 275 325 200 175 75 125 2008 2009 2010 2008 2009 Copper & brass mill shapes Aluminum mill shapes 1 -month change: 6. 5%, 12 -month: 5. 0% 1 -month change: 1. 8%, 12 -month: 8. 4% 475 200 400 180 325 160 250 140 2008 2009 Source: BLS producer price index reports 2010 2008 2009 2010 16

Producer price indexes, 1/08 -8/10 Asphalt paving mixtures & blocks Concrete products 1 -month change: -0. 3%, 12 -month: 5. 1% 1 -month change: 0. 3%, 12 -month: -1. 1% 350 220 300 215 250 210 205 2008 2009 2010 2008 2009 Gypsum products Lumber and plywood 1 -month change: -0. 1%, 12 -month: 0. 1% 1 -month change: -2. 3%, 12 -month: 9. 0% 225 200 215 180 205 160 195 140 2008 2009 Source: BLS producer price index reports 2010 2008 2009 2010 17

Outlook for materials • 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 • Allow for 6 to 8% PPI increases after 2010 Source: Author 18

State Construction Employment Change (U. S. : -5%) 8/09 to 8/10 (seasonally adjusted) -11% -10% -3% -9% -7% -13% -6% 2% -3% -8% -20% -7% -12% -5% 0% -1% -2% 8% 9% -8% -10% -3% -4% -1% -7% 3% - -4% -7% -4% 3% -5% -7% -2% Source: BLS state and regional employment report MA 3% NJ -8% MD 1% RI 2% CT -4% DE -7% DC 4% -5% 0 to 10% -1% -5% HI -5% -9% -2% -6% -3% NH 10% VT -14% -0. 1 to -5% -6 to -20% 19

In thousands Construction Employment in United States (seasonally adjusted; shading = recessions) 8, 000 7, 000 6, 000 5. 6 million Aug. ‘ 96 5, 000 4, 000 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 In thousands Construction Employment in Kansas 75 (seasonally adjusted; shading = recessions) 65 55 Feb. ‘ 05 61, 300 45 35 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Source: BLS 20

Construction Employment Change from Year Ago Not seasonally adjusted (NSA) 10% Kansas 7% 3 out of 51 12 -month % change 5% 0% U. S. -4% -5% -10% -15% -20% 2008 Source: BLS 2009 2010 21

Change in construction employment, 8/09 -8/10 12 -mo. empl. change (NSA) Rank (out of 337) Kansas City, KS* 7% 13% 3 Topeka, KS* 5% 11 -3% 125 Metro area or division Statewide Wichita, KS* *Mining and logging included with construction Source: AGC rankings, calculated from BLS state and area employment reports 22

JJJa FFM aann e MAaabbn----0007 M M MJAaapparrrrr-----000077777 JJuayy-007 AAAJJuuuuunnny-----0000077777 SSuueggll---000777 O ecgpp---000777 O O N N c -07 D D DJ ooeecvvcttt-----0000077777 FFFJeaaencc---000777 Meebbn---000777 M AAAppaabrr----00008788 M M MJ aaprrr---00888 JJuuayyy--000888 AASJJuuuunnl----0000888 SSueeggll---000888 O Oecppp----00008888 N N N D DJ oooecvvvtt----00008888 JJaaecc--00888 FFM an-0 M MAeeaabbnn-----0000088889 MApparrr---00999 M M JJuaaayyrr---0000999 AAAJJJuuuuunnyl-----0000099999 SSueuggll---000999 O ecgpp---000999 O O N N c -09 D D DJ ooeecvvcttt-----0000099999 FFFJeaaencc---000999 M MAeeabbbn----00119999 M MAAappparrrr-----111100000 ayyr--111000 00 # of states with: # losses of metros gains Number of states with 1 -year gains or losses in construction employment January 2007 to August 2010 (seasonally adjusted) 30 15 0 -15 -45 -60 More than 10% 0. 1% to 10% -10% to -0. 1% -30 More than -10%

State Construction Employment Change from Peak (seasonally adjusted) -36% -4% -38% -36% -47% -23% -11% -43% -59% -35% -53% -18% -36% -29% -26% -9% -5% -28% -19% -17% -29% -33% -27% -37% -26% -16% -31% -27% - -31% -23% -33% Source: BLS state and regional employment report MA -23% RI -28% NJ -30% CT MD -27% -21% DC DE -26% -39% 0 to -9. 9% -10 to -24. 9% -6% -47% HI -28% -30% -13% -47% -11% NH -21% VT -34% -25% to -49. 9% -50% or worse 24

Predictors of construction demand Architecture & engineering services empl. 1 -month % change, not seasonally adjusted 2% 55 1 -mo % change, N. S. A. Architecture Billings Index, S. A. Architecture Billings Indexes (50=balance bet. higher and lower billings) 50 45 40 35 30 1% 0% -1% -2% -3% -4% 25 2008 2009 2008 2010 Overall ABI Office/ Industrial Institutional Mixed-practice Architectural services Source: American Institute of Architects (billings) , BLS (employment) 2009 2010 Eng & drafting services 25

Summary for 2010 • Nonres spending: -15 to -20% (more stimulus put in place, maybe gains in retail, higher ed, hospitals) • Res: +5 to -5% (SF up, MF down all year) • Total construction spending: -10% to -15% • Materials costs: 0% to +4% • Labor costs: +2% or less Source: Author 26

Summary for 2011 • Nonres spending: 0 to +5% (less stimulus; weak state-local; more retail, hotel, higher ed, hospitals) • Res: +5 to +10% (SF up, MF leveling off) • Total construction spending: +3 to +7% • Materials costs: +3% to +8% • Labor costs: +2. 5% or less Source: Author 27

AGC economic resources (email simonsonk@agc. org) • The Data DIGest: weekly 1 -page email (sign up: www. agc. org/datadigest) • PPI tables: emailed monthly • State and metro data, fact sheets • Stimulus info: www. agc. org/stimulus • Webinars (Oct. 21 w/ AIA, Reed) • Feedback on stimulus, credit, costs 28