Building Materials Forecasting Service Executive Summary: Q2 2010
Building Materials Overview Building materials have been hard hit by the recession in the U.S. housing market and the deep downturn in the nonresidential construction industry Building materials have reacted to the downturn by varying degrees depending on the end-market, Materials heavily used in the residential construction sector declined earlier and will recover sooner than materials used in the nonresidential sector Structural wood, for example, has been posting strong declines since 2007, but is expected to turn around this year with a 7.5% increase Lighting fixtures, which are predominately used in nonresidential construction, faced their largest downturns in 2009 and 2010 and will not recover until 2011, when the nonresidential outlook improves Bottom Line: Residential construction activity will improve in 2010, while nonresidential construction activity will not recover until 2011.
Construction Outlook Affects Building Materials Purchased Purchases of building materials is driven by total construction activity and varies between construction segments The recovery in the residential construction sector is expected to outpace total construction As a result, we expect robust growth in materials predominantly used in residential construction Construction Outlook (Percent change from a year earlier) 50 40 30 20 10 0-10 -20-30 -40 2000 2002 2004 2006 2008 2010 2012 2014 Total Construction Nonresidential Residential
Residential Building Materials Will Remain Below 2006 Peak 180 160 140 2005 = 100 120 100 80 60 40 20 2000 2002 2004 2006 2008 2010 2012 2014 Building Materials Index Nonresidential Buidling Materials Index Residetnial Building Materials Index
Residentially Focused Materials Will Recover First 8 Billions of dollars 7 6 5 4 3 2 1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Building Hardware Insulation Gypsum product manufacturing Paint and coatings Asphalt shingle & coating materials
Residential Recovery Will Be Uneven; Watch for the Winners Top States for Dimensional Lumber 2600 Millions of dollars, annual rate 2100 1600 1100 600 100 2000 2002 2004 2006 2008 2010 2012 2014 NEW YORK FLORIDA NEW JERSEY TEXAS CALIFORNIA
Infrastructure Construction was Aided by the Stimulus Package U.S. infrastructure spending was lifted by the U.S. stimulus package throughout 2009; however spending has started to wane Total infrastructure spending will contract through the first quarter of 2011 We expect infrastructure construction spending to decline 4.7% in 2010 and another 2.1% in 2011 before returning to an annual growth pattern in 2012 Components of Infrastructure Construction Billions of 2005 dollars, SAAR 225 200 175 150 125 100 75 50 2000 2003 2006 2009 2012 Highways & Streets Sewer Construction Water Supply Power Transportation
Shallower Cycle for Materials Used Heavily in Infrastructure Billions of dollars 50 45 40 35 30 25 20 15 10 5 0 1997 2001 2005 2009 2013 2017 Cement & Cement Products Window and door manufacturing Asphalt shingle & coating materials Structural Steel and Other Metals HVAC
Cement Demand Will Partially Recover Percent change from a year earlier 30 20 10 0-10 -20-30 2000 2002 2004 2006 2008 2010 2012 2014 Total Construction Residential Non-Residential and Public Maintenance & Repair
Equipment Rental & Leasing Hit Hard During Recession Billions of dollars 14 13 12 11 10 9 8 7 6 5 4 2000 2001 2002 2003 2004 2005 2006 2007 Structural Wood Machinery and equipment rental and Building Controls and Other Electri 2008 2009 2010 2011 2012 2013 2014 Aggregates and Other Stone Products Decorative Details
Share of Intermediate Goods Varies by Structure Type Structure types exhibit varying shares of 'Cost of Goods Sold' to value of output. Residential Alterations & Additions Farm Buildings Single Family Residential Water, Sewer & Pipelines Multi-Family Residential Total Construction Highway & Bridges Commercial & Institutional Structures Manufacturing Structures Other Construction 68.8% 66.1% 62.1% 60.1% 56.9% 56.3% 53.2% 52.1% 49.1% 48.9%
Renovation Will Lead Eventual Recovery Most Commonly Changed Building Components Building Component Interior Components Lighting HVAC distribution system Interior partitions HVAC Components Power distribution system Exterior Components Windows, skylights, doors Roof system Shell structure, façade, ornamentation Percent of Cases 76% 72% 60% 46% 37% 19% 10% 9%
New Construction Spending Dominates Material Demand 400 Billions of dollars, annual rate 300 200 100 0 2000 2002 2004 2006 2008 2010 2012 2014 Residential Manufacturing and industrial buildings Commercial and institutional buildings Highway, street, bridge, and tunnel construction Maintenance and repair of farm and nonfarm residential structures Maintenance and repair of nonresidential buildings Maintenance and repair of highways, streets, bridges, and tunnels
Implications for Your Business Intermediate materials spending accounts for over half of total construction spending This year will be challenging for all intermediates, goods and services dedicated to infrastructure investment will be best positioned We expect a rebound in sales of building materials in 2011 with those concentrated in the residential sector best positioned Within the nonresidential sector, goods and services used most intensively by renovation activity will benefit earlier from the eventual recovery There is significant variation in opportunity between states and attention should be paid to the recovery in the housing market and employment