Cement & Construction Outlook

Transcription

1 Cement & Construction Outlook Minnesota Concrete Council November 17, 2011 Dave Zwicke, PCA Analytics Manager, Sr. Economist

2 Bottom Line Economy in a slow growth period characterized by tepid job gains. Limited policy tools to stimulate. More than 1 in 3 chance of double dip in 2011/2012 Only marginal gains in residential construction Hindered by foreclosures, tight lending standards and slow job growth. Nonresidential engaged in a long, slow healing process Process has only begun. Public no longer a key positive State deficits and lower property taxes will have negative affect

3 Risk of Recession % Probability the U.S. will Enter a Recession in 6 months Source: Moody s 5/1/2010 7/1/2010 9/1/201011/1/20101/1/2011 3/1/2011 5/1/2011 7/1/2011 9/1/2011

4 Portland Cement Consumption: Fall Outlook Thousand Metric Tons 140, , ,450 80,450 60,450 40,450 20,450 Growth Rates 2007: : : : : : : : U Shaped Recovery: Prolonged Source: PCA

5 Construction Turning Points Real Construction Spending Index, 1997= Residential 140 Public Nonresidential 60 Source: PCA

6 Economic Outlook

7 Economic Headwinds Housing Energy? Financial Crisis Inflation Labor Markets State Deficits

8 U.S. Unemployment Rate Improving Unemployment Rate (L) Labor Force (Mil) (R) Workers Not Yet Reentering Workforce U.S. Unemployment Rate Source: BLS

9 Getting back to Even Employment, Index = Recession Start Source: PCA/BLS

10 Minnesota Unemployment Unemployment Rate 12.0 = Recession U.S Minnesota Source: BLS

11 Minnesota Job Growth Year-over-Year Change in Employment As of: September 2011 Contracting Expanding Source: BLS

12 U.S. Job Growth a little better than reported Net Job Loss/Gain (000) Jun-2010 Sep-2010 Dec-2010 Mar-2011 Jun-2011 Sep-2011 Source: BLS Net Job Growth Private Sector Job Gr.

13 Businesses Remain Cautious Small Business Optimism Index Source: National Federation of Independent Businesses

14 European Sovereign Debt Concerns 10 Y Treasury Yields Greece Ireland Italy Germany Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Source: European Central Bank (ECB)

15 Total Sovereign Debt by Nation USD, billions as of ,000 10,000 Rank 1st Rank 2nd Rank 3rd Rank 4th Rank 13th 8,000 6,000 4,000 2,000 0 USA Japan Germany Italy Greece Source: CIA 2011 World Fact Book

16 Residential Construction

17 Foreclosures Stabilize % of loans 90 days past due, SA % of loans in foreclosure, SA Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 Source: Mortgage Bankers Association

18 Existing Home Sales - Minnesota Existing Home Sales, 000 SAAR Home Tax Credit Expirations Home Prices (R) Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 75 Source: National Association of Realtors

19 Minnesota Home Prices Undervalued? 3.5 Median Home Price / Average Household Income Q1 1993Q1 1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1 Source: Census

20 Single Family Construction: Minnesota Single Family Permits, Units 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Excessive inventories continue to stifle new home construction

21 SF: Coiled Spring or Structural Change? Population Growth Per Housing Start Housing Supply = 600,000 Single family = 450,000 Multifamily = 100,000 Manufactured = 50,000 Housing Demand = 1,350,000 HH formations = 800,000 Replacement = 350,000 Second Homes = 200,000 Source: PCA

22 Nonresidential Construction

23 Risk of Eurozone Contagion? Yes & No 3.5 Sub Prime S&L Crisis Orange County Peso Crisis Asian Financial Crisis LCMT Y2K Tech Bubble Euro Sovereign Debt TED Spread Difference between 3m T-Bill & LIBOR

24 U.S. Nonresidential Construction Spending Real $, millions 200, , , , , ,000 80, Source: Moody s Investors Services

25 Office Building Construction Spending = U.S Source: PCA 20 0 Minnesota

26 Office Outlook Minnesota Cement Consumption - Metric Tons 60,000 50,000 40,000 30,000 20,000 10, : -57% 2010: -50% 2011: +12% 2012: +26% Source: PCA

27 Retail Sales Have Recovered Annual Percent Change 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Source: U.S. Census Bureau

28 Retail Building Construction $, Millions, Real 1996 Dollars U.S Minnesota Source: PCA

29 Retail Outlook Minnesota $, Millions, Real 1996 Dollars : -15% 2010: -32% 2011: +8% 2012: -9% Source: PCA

30 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,

31 Medical/Institution Outlook U.S. $, Millions, Real 1996 Dollars 25,000 20,000 15,000 10,000 5, : -1.4% 2010: -5.5% 2011: -5.6% 2012: +6.1% Expected to Remain Strong With or Without Healthcare Reform Source: PCA

32 Commercial Construction - Order of Recovery Rankings based on: Office, Industrial, Retail and Hospitality Employment Trends WA MT ND NH VT ME OR MN ID WY SD WI MI NY MA RI CT CA NV UT CO NE KS IA MO IL IN KY OH WV PA VA NJ DE MD AZ NM OK AR TN SC NC MS AL GA TX LA FL HI Source: PCA Early Recovery Average Recovery Late Recovery

33 Public Construction

34 State Fiscal Conditions FY 2012 Deficit Share of General Fund WA MT ND NH VT ME OR MN ID WY SD WI MI NY MA RI CT CA NV UT CO NE KS IA MO IL IN KY OH WV PA VA NJ DE MD AZ NM OK AR TN SC NC MS AL GA TX LA FL HI Source: PCA/CBPP June 2011 No Shortfall Minor Moderate Severe

35 Public Buildings $, Millions, Real 1996 Dollars 1,800 1,600 1,400 1,200 1, Source: PCA

36 Public Building Outlook Minnesota Metric Tons 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20, : -14% 2011: -10% 2012: +6% 10, Source: PCA

37 Federal Highway Funding Stimulus has run its course. 83% of stimulus funds spent nationally 97% of Minnesota s stimulus funds spent Federal Highway Bill (SAFETEA-LU) Expired Extensions since bill expired Next Deadline March 30, 2012 Outlook for next bill No Funding Increase (Possible Cut) Minimum of 20% increase necessary to maintain buying power. Potential Jobs Bill $100 billion infrastructure investment Funding is would largely mirror ARRA

38 Highway Bill Cement Consumption Scenarios: Spring Vs. Current Outlook 25,000 Spring Forecast 20,000 15,000 Current Forecast 10,000 5,000 Mica Proposal Source: PCA

39 Highway Outlook Minnesota $, Millions, Real 1996 Dollars 1,600 1,400 1,200 1, : -29% 2010: +14% 2011: +2% 2012: -6% Source: PCA

40 Public Construction - Order of Recovery Rankings based on: Deficits, ARRA, Employment, Long-Term Debt WA MT ND NH VT ME OR MN ID WY SD WI MI NY MA RI CT CA NV UT CO NE KS IA MO IL IN KY OH WV PA VA NJ DE MD AZ NM OK AR TN SC NC MS AL GA TX LA FL HI Source: PCA Early Recovery Average Recovery Late Recovery

41 Total Cement Consumption Minnesota $, Millions, Real 1996 Dollars 2,500 2,000 1,500 1, : -17% 2010: +6% 2011: -4% 2012: 1% Source: PCA

42 Paving New Realities

43 Oil Price History $ Per Barrel, WTI Old Reality: Emphasis on OPEC & Supply Side OPEC Induced Energy Crisis New Reality: Emphasis on LDC s & Demand Side Asia (excluding Japan) = 20% world Oil Demand 40 OPEC Formed Source: U.S. Energy Information Agency

44 Asphalt Price History =100 New Reality: Emphasis on LDC s & Demand Side Old Reality: Emphasis on OPEC & Supply Side Source: Bureau of Labor Statistics, Producer Price Index

45 Pavement Life Expectancy Years Before Major Reconstruction Required 25 Concrete: Average = 29.3 Years Number of State DOTs Reporting Asphalt : Average = 13.6 Years 1-5 Years 6-10 Years Years Years Years Years Source: PCA 2008 Highway Pavement Report

46 Initial Bid Paving Costs Dollars Per 2 Lane Road Mile - Urban $1,400,000 $1,200,000 Asphalt $1,000,000 $800,000 $600,000 $400,000 $200,000 Concrete Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)

47 Concrete s Initial Bid Cost Savings Vs. Asphalt $550,000 $450,000 $350,000 $250,000 $150,000 $50,000 -$50,000 -$150,000 -$250,000 -$350,000 No EPA NESHAP Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)

48 Regulatory Impacts Most Significant Threat To Domestic Cement Production in History

49 U.S. Capacity Outlook: No New Capacity Expansions Planned Million Metric Tons Cement Consumption Cement Production

50 U.S. Capacity Outlook: Potential NESHAP Impacts Million Metric Tons Cement Consumption Supply Gap: 30 MMT Cement Production EPA: Hg Impact

51 Take a Step Back

52 Cement Consumption: Long-Term Million Metric Tons Growth in Context of Population Changes, Pent up Demand, Competitive Advantages and Green Revolution.

53 Cement & Construction Outlook Minnesota Concrete Council November 17, 2011 Dave Zwicke, PCA Analytics Manager, Sr. Economist