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

2. 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) 2 Source: Author

3. Construction-related stimulus funding (~$135 bil.) $49 billion up to $35 billion $30 billion $21 billion 3 Source: Author

4. 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 4 Source: Author

5. ’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 5 Source: Author

6. 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 6 Source: Prof. Stephen Fuller, George Mason University

7. Construction spending, level and 12-month changeSeasonally adjusted annual rate (SAAR), 2008-August 2010 ▬Total Construction ($812 billion, -10%) ▬Public ($314 billion, -1%) ▬Private Nonresidential ($260 billion, -24%) ▬Private Residential ($238 billion, -2%) 7 Source: Census Bureau construction spending reports

8. Single- vs. multi-family, 2008-10, seasonally adjusted annual rate (SAAR) 8 Source: Census Bureau construction spending, housing starts reports

10. Supply swelled by owners and banks who are trying to rent out houses and condos

11. Banks remain unwilling to lend to developers9 Source: Author

12. Nonres totals (billion $, SAAR), share & 12-month change 10 Source: Census Bureau construction spending report

13. Construction spending: industrial, heavy (billion $, SAAR) Amusement & recreation (37% private) 1-month change: 0.9%, 12-month: -4% 11 Source: Census Bureau construction spending reports

14. Construction spending: public works (billion $, SAAR) 12 Source: Census Bureau construction spending reports

15. Construction spending: institutional (private + state/local) 13 Source: Census Bureau construction spending reports

16. Construction spending: developer-financed (billion $, SAAR) 14 Source: Census Bureau construction spending reports

17. Construction employment, wages, costs and output prices Construction vs. all other nonfarm empl. ▬ Const. 0.3% (+19,000) ▬ All other -0.1% (-73,000) Producer price index for construction inputs 12-month % change, 2008-August 2010 (8/09-8/10: 3.6%) PPI for construction inputs, finished buildings 12-month % change, August 2009-August 2010 Employment cost index for construction 4-quarter % change, 2008-2Q 2010 (2Q09-2Q10: 1.0%) 15 Source: BLS employment, employment cost index, producer price index (PPI)

18. Producer price indexes, 1/08-8/10 16 Source: BLS producer price index reports

19. Producer price indexes, 1/08-8/10 17 Source: BLS producer price index reports

20. 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 18 Source: Author

21. State Construction Employment Change (U.S.: -5%) 8/09 to 8/10 (seasonally adjusted) -11% -13% -10% -9% NH10% -9% -3% -7% VT-14% 2% -2% -3% -6% -6% MA3% -8% -20% 0% -1% -3% -2% -1% RI2% -7% -1% -12% 3% NJ-8% CT-4% -10% - -4% 8% -7% DC4% -5% MD 1% -7% -8% -4% 9% -3% 3% -5% -5% DE-7% -2% -7% -1% 0 to 10% -5% -0.1 to -5% -6 to -20% -4% 19 Source: BLS state and regional employment report HI-5%

22. 20 Source: BLS

23. Kansas 7% 3 out of 51 U.S. -4% 21 Source: BLS

24. Change in construction employment, 8/09-8/10 22 Source: AGC rankings, calculated from BLS state and area employment reports

25. Number of states with 1-year gains or losses in construction employmentJanuary 2007 to August 2010 (seasonally adjusted)

26. State Construction Employment Change from Peak (seasonally adjusted) -36% -47% -36% -30% NH-21% -38% -4% -36% VT-34% -23% -13% -11% -47% -23% MA-23% -43% -59% -18% -18% -11% -36% -31% RI-28% -29% -26% -35% -17% NJ-30% CT-27% -31% - -29% -9% -27% DC-26% -53% MD-21% -33% -28% -27% -5% -16% -7% -37% -33% DE-39% -23% -26% 0 to -9.9% -6% -10 to -24.9% -47% -25% to -49.9% -50% or worse -19% 24 Source: BLS state and regional employment report HI-28%

27. Predictors of construction demand Architecture & engineering services empl. 1-month % change, not seasonally adjusted Architecture Billings Indexes (50=balance bet. higher and lower billings) 25 Source: American Institute of Architects (billings) , BLS (employment)

28. 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 26 Source: Author

29. 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 27 Source: Author

30. 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