Construction Spending, Labor & Materials Outlook. AGC Fiscal Issues Forum June 8, 2015 Ken Simonson Chief Economist, AGC of America

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1 Construction Spending, Labor & Materials Outlook AGC Fiscal Issues Forum June 8, 2015 Ken Simonson Chief Economist, AGC of America

2 Construction spending & employment, Total spending, March 2006 (peak) Mar billion $, seasonally adjusted annual rate (SAAR) $1.2 trillion $1,250 $1,000 $750 $500 $ $967 bil. ( 20%) Total employment, April 06 (peak) April 15 thousands, seasonally adjusted 7.7 million 7,500 6,000 4,500 3,000 1, mil. ( 17%) Spending change from March 2006 Employment change from April % 25% 0% 25% 50% 75% Total as of 3/15: 20% Residential: 48% Private nonres: 24% Public: 5% 50% 25% 0% 25% 50% 75% Total: 17% Residential: 29% Nonresidential: 8% Source: BLS, Census Bureau construction spending reports

3 Construction is growing, but unevenly 3 trends helping many sectors and regions: Shale gale mainly downstream after oil price plunge Panama Canal expansion Residential revival, especially multifamily 3 trends holding down construction growth: Government spends less on schools, infrastructure Consumers switch from stores to online buying Employers shrink office space per employee Source: Author

4 Shale plays in lower 48 states Current play oldest stacked play F Current play intermediate depth/ age stacked play Current play shallowest/ youngest stacked play Prospective play Basin Source: U.S. Energy Information Administration, based on data from various published studies

5 Shale s direct and indirect impacts on construction Onsite: Each well requires access road, site prep, pad, storage pond, support structures, pipes Nearby: Products, water require trucking, rail, pipeline, processing Local spending by drilling firms, workers, royalty holders Upstream: orders for fracking sand, rigs, compressors, pumps, pipe, tanks, trucks, railcars, processing facilities Downstream: Petrochemical, power, steel plants; LNG export terminals, fueling stations; NG powered vehicles Losers: coal; maybe wind, solar, nuclear & their suppliers Source: Author

6 U.S. ports affected by Panama Canal expansion Seattle & Tacoma Columbia River at Mouth, OR & WA NY NJ Oakland Baltimore Los Angeles/ Long Beach San Diego Houston Mobile New Orleans Norfolk Charleston Savannah Jacksonville Miami Source: U.S. Army Corps of Engineers

7 Panama Canal expansion s impacts on construction Ports: investing in dredging, piers, cranes, land access Nearby: Storage, warehouse, trucking, rail facilities Bridge, tunnel, highway improvements Inland: possible changes in distribution, manufacturing Source: Author

8 Billion $ Private residential spending: MF still soaring, SF slowing $450 $375 $300 $225 $150 $ Private residential spending, Jan March 2015 (billion $, SAAR) Multifamily (MF) Single family (SF) Improvements 60% 12 month % change, Jan March month % change 40% 20% 0% 20% Multifamily: 23% Single family: 8% Total: 3% Improvements: 25% Source: Census Bureau construction spending reports

9 Housing outlook SF: rising for now but tight credit, fear of lock in, demographic shifts may limit increases MF: Upturn should last through 2015 Vacancy rates near multi year lows in most cities Preference for urban living adds to demand Condos have been slower to revive than rentals Government subsidized market remains weak Improvements: reported decline is not credible; should track SF sales Source: Author

10 Population change by state, July 2013 July 2014 (U.S.: 0.75%) decrease % % % 1.5%+ 1.3% 1.1% 1.7% 1.0% 1.3% 1.5% 1.4% 0.9% 0.2% 1.6% 0.1% 2.2% 0.9% 0.7% 0.3% 0.6% 0.6% 0.3% 0.3% 0.1% 0.5% 0.05% 0.2% 0.1% 0.4% 0.2% 0.3% 0.7% 0.3% 1.0% 0.8% 0.3% 1.3% 1.0% 0.1% 0.3% 0.1% CT 0.1% DE 1.1% MD 0.6% NH 0.3% VT 0.05% MA 0.5% RI 0.2% NJ 0.3% DC 1.5% 0.1% HI 0.8% 1.7% 0.4% 1.5% Source: U.S. Census Bureau News

11 Nonresidential segments: 2014 total & 2015 forecast 2014 total 2014 vs forecast Nonresidential $606 billion 7 % 4 8% Power (incl. oil & gas structures, pipelines) Highway and street to 5 Educational to 5 Commercial (retail, warehouse, farm) to 5 Manufacturing Office Transportation to 5 Health care to 5 Sewage and waste disposal 23 5 Amusement & recreation 17 8 Lodging Other (communication; water; public safety; conservation; religious): 8% of total 1 Source: Census Bureau construction spending report; Author s forecast

12 Construction spending: industrial, heavy (billion $, SAAR) Power (88% private) Total $100 $80 Electric $60 $40 Oil & Gas Latest 12 mo. change: 16% (oil & gas 45%; electric 40%) Manufacturing (98% private) $100 $80 $60 $ Total Other Chemical Latest 12 mo. change: 50% (other 27%; chemical 90%) Transportation facilities (70% public) $50 $40 $30 $ Public & private transportation facilities $50 $40 $30 Public $10 Private Latest 12 mo. change: 9% Latest 12 mo. change: private 5%; public 19% Source: Census Bureau construction spending reports

13 Construction spending: public works (billion $, SAAR) $90 Highways (99.7% public) $30 Sewage/waste (99% public) $60 $30 $ Latest 12 mo. change: 5% Latest 12 mo. change: 20% $30 $10 Amusement & recreation (52% public) $30 $10 Water supply (95% public) Latest 12 mo. change: 24% Latest 12 mo. change: 2% Source: Census Bureau construction spending reports

14 Construction spending: institutional (private + state/local) Total education (79% public) $100 $80 $60 $ Latest 12 mo. change: 3% Education (state & local K 12, higher; private) $100 $80 S/L prek 12 $60 $40 S/L higher ed Private Latest: state/local prek 12 8%, higher 6%; private 3% Total healthcare (77% private) $50 $40 $30 $ Hospitals (private, state & local) $50 $40 $30 Private $10 S/L Latest 12 mo. change: 0.2% Latest 12 mo. change: private 1%; state & local 5% Source: Census Bureau construction spending reports

15 Construction spending: developer financed (billion $, SAAR) Retail (private) $80 $60 $ Latest 12 mo. change: 6% Office (85% private) $80 Total $60 Private $40 Public Latest 12 mo. change: 20% (private 26%; public 6%) Warehouse (private) $40 $30 $ Lodging (private) $40 $30 $ Latest 12 mo. change: 37% Latest 12 mo. change: 22% Source: Census Bureau construction spending reports

16 Major locations for data centers Seattle Portland Minneapolis Boston Silicon Valley Southern California Salt Lake Las City Vegas Phoenix Denver Colorado Springs Des Moines Omaha Kansas City Chicago St. Louis Atlanta Philadelphia Northern Virginia Northern New Jersey Dallas Houston Northern Florida Source: from CBRE, ASHRAE

17 State construction employment change (U.S.: 4.7%) 3/14 to 3/15: 41 states up, DC unchanged, 9 down Over 10% 5.1% to 10% 0.1% to 5% 0% 0.1% to 5% 5.1% to 10% Over 10% 12% 2% 6% 7% 15% 2% 6% 2% 4% 1% 10% 12% 7% 1% 3% 1% 0.2% 9% 0.1% 3% 8% 8% 10% 2% 4% 5% 2% 1% 0.1% 1% 7% 7% 7% 4% 2% 3% 1% CT 1% DE 2% MD 1% NH 3% VT 3% MA 1% RI 1% NJ 8% DC 0% 1% HI 3% 6% 1% 10% Shading based on unrounded numbers Source: BLS state and regional employment report

19 Metro construction employment change 3/14 to 3/15: 249 metros up, 53 unchanged, 56 down Over 10% 5.1% to 10% 0.1% to 5% 0% 0.1% to 5% 5.1% to 10% Over 10%

20 Unemployed construction workers, April 2000 April 2015 (not seasonally adjusted) 2,000,000 1,750,000 1,500,000 1,250,000 1,000, , , , Source: BLS

21 Hardest positions to fill (% of respondents who are having trouble filling) Craft 83% Carpenters 66 Roofers 64 Equipment operators 59 Plumbers 54 Electricians 52 Professional 61% Project managers/supervisors 48 Estimators 32 Source: AGC Member Survey, Sept

22 Producer price indexes for key inputs, 12/10 4/15 (Dec. 2010=100) 150 Steel mill products 150 Copper & brass mill shapes / Latest 1 mo. change: 3.4%, 12 mo.: 9% 75 12/ Latest 1 mo. change: 1.6%, 12 mo.: 3% 150 Steel pipe and tube 150 Aluminum mill shapes /10 12/ Latest 1 mo. change: 4.3%, 12 mo.: 7% Latest 1 mo. change: 1.4%, 12 mo.: 3% Source: Author, based on BLS producer price index reports

23 Producer price indexes for key inputs, 12/10 4/15 (Dec. 2010=100) 150 Diesel fuel 150 Concrete products / Latest 1 mo. change: 5.6%, 12 mo.: 42% 75 12/ Latest 1 mo. change: 1.4%, 12 mo.: 5% 150 Plastic construction products 150 Architectural coatings /10 12/ Latest 1 mo. change: 0.05%, 12 mo.: 1% Latest 1 mo. change: 0.1%, 12 mo.: 2% Source: Author, based on BLS producer price index reports

24 AGC members expectations for 2015 Net % who expect dollar volume of projects to be higher 33% Retail/warehouse/lodging 15% Higher education 26% Manufacturing 13% Other transportation 25% Private office 8% K 12 school 24% Water/sewer 5% Public building 24% Energy 6% Marine construction 20% Hospital 16% Direct federal construction 17% Power 16% Highway Source: AGC Construction Outlook Survey, Jan (912 total responses)

25 Trends: Total construction spending: +6% to +10% per year less SF housing, retail; flat public spending new drivers: shale based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults Materials costs: 1 to +3% (similar to CPI); rare spikes Labor costs: +2.5% to + 5% Labor supply: widespread shortages possible due to retirements, competition from other sectors, fewer vets Source: Author

26 Summary for 2013, 2014, forecast 2013 actual 2014 actual Total spending 5.6% 5.5% 6 10% Private residential 20% 4% 1 10% nonresidential 1% 11% 1 10% annual average forecast Public 3% 2% near 0 Materials PPI 1.3% 0.9% 0 3%; rare spikes Employment cost index 2.0% 1.8% 3 5% Source: : Census, BLS; : Author s ests.

AGC economic resources (email simonsonk@agc.

27 AGC economic resources ( The Data DIGest: weekly 1 page (subscribe at monthly press releases: spending; PPI; national, state, metro employment state and metro data, fact sheets: data Webinars, custom presentations

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