Construction Spending, Labor & Materials Outlook. January 6, 2015 Ken Simonson Chief Economist, AGC of America

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1 Construction Spending, Labor & Materials Outlook January 6, 2015 Ken Simonson Chief Economist, AGC of America

2 Construction spending & employment, month % change, Jan Nov % 15% 0% -15% Total spending, Jan Nov billion $, seasonally adjusted annual rate (SAAR) 11/14: $975 bil. $1,250 $1,000 $750 $500 $ % Total (11/13-11/14: 2%) Res (-1%) Private Nonres (5%) Public (3%) 12-month % change, Jan Nov % 0% -10% Total employment, Jan Nov thousands, seasonally adjusted 7,500 11/14: 6,109,000 6,000 4,500 3,000 1, % Total (11/13-11/14: 3.6%) Residential (5.6%) Nonresidential (2.4%) Source: BLS, Census Bureau construction spending reports 2

3 Construction is growing, but unevenly 3 trends helping many sectors and regions: Shale gale 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 3

4 One (or many) bright spot(s): the shale gale Bakken Marcellus Niobrara Permian Haynesville Eagle Ford Source: U.S. Energy Information Administration 4

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 5

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 6

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 7

8 12 month % change Billion $ Private residential spending: MF still soaring, SF slowing $450 Private residential spending, Jan November 2014 (billion $, SAAR) $375 $300 $225 $150 $ Multifamily (MF) Single family (SF) Improvements 12-month % change, Jan November % 45% 30% 15% 0% -15% Multifamily: 27% Single family: 13% Total: -1% Improvements: -25% Source: Census Bureau construction spending reports 8

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: down in 14 but should track SF sales Source: Author 9

10 Nonres segments: 2014 year-to-date & 2015 forecast 11/14 total (SAAR) 2014 vs Jan-Nov YTD 2015 forecast Nonresidential $617 billion 6 % 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 24 3 Lodging Amusement & recreation 17 7 Other (communication; water; public safety; conservation; religious): 8% of total -2 Source: Census Bureau construction spending report; Author s forecast

11 Construction spending: industrial, heavy (billion $, SAAR) Power (89% private) $120 $90 $60 $30 Latest 12-mo. change: -5% (private -4%; public -15%) Transportation facilities (72% public) $60 $45 $30 $15 Latest 12-mo. change: 5% Manufacturing (99% private) $60 $45 $30 $15 Latest 12-mo. change: 21% Public & private transportation facilities $60 $45 Public $30 $15 Private Latest 12-mo. change: private 6%; public 5% Source: Census Bureau construction spending reports 11

12 Construction spending: public works (billion $, SAAR) $90 Highways (99.7% public) $30 Sewage/waste (99% public) $60 $20 $30 $10 Latest 12-mo. change: 6% Latest 12-mo. change: 14% Amusement & recreation (54% public) $30 $20 $10 $30 $20 $10 Water supply (96% public) Latest 12-mo. change: 5% Latest 12-mo. change: -2% Source: Census Bureau construction spending reports

13 Construction spending: institutional (private + state/local) $120 Total education (79% public) $100 $80 $60 $40 $20 Latest 12-mo. change: 3% Education (state & local K-12, higher; private) $100 $80 S/L prek-12 $60 $40 S/L higher ed $20 Private Latest: state/local prek-12 0%, higher 8%; private 7% Total healthcare (74% private) $50 $40 $30 $20 $10 Hospitals (private, state & local) $50 $40 $30 Private $20 $10 S/L Latest 12-mo. change: -8% Latest 12-mo. change: private -10%; state & local -6% Source: Census Bureau construction spending reports

14 Construction spending: developer-financed (billion $, SAAR) Retail (private) $80 $60 $40 $20 Latest 12-mo. change: -1% Office (83% private) $80 Total $60 Private $40 $20 Public Latest 12-mo. change: 15% (private 18%; public 2%) Warehouse (private) $40 $40 Lodging (private) $30 $30 $20 $20 $10 $10 Latest 12-mo. change: 58% Latest 12-mo. change: 11% Source: Census Bureau construction spending reports

15 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

16 State construction employment change (U.S.: 3.6%) 11/13 to 11/14: 38 states + DC up, 12 down Over -10% -5.1% to -10% -0.1% to -5% 0% 0.1% to 5% 5.1% to 10% Over 10% 9% 1% 5% 6% 4% -4% 10% -2% -1% 1% 5% 16% 0.5% -5% 2% 2% 3% 5% -0.1% 8% 7% 6% 4% -8% 6% 3% -1% 3% -11% 1% -4% 7% 2% 5% 1% 1% 2% CT 3% DE 4% MD 1% NH 1% VT 2% MA 2% RI 4% NJ -5% DC 6% -2% HI -2% 8% 4% 9% Shading based on unrounded numbers Source: BLS state and regional employment report

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18 In Millions Change in construction (un)employment, 11/10-11/14 Construction unemployment fell sharply in past 4 years But industry employment rose much less Thus, workers left for other sectors, school, retirement Unemployment rates (Not seasonally adjusted, Nov Nov. 2014) Change in unemployment & employment (Not seasonally adjusted, Nov Nov. 2014) 20% 15% 10% 5% 18.8% 9.3% 7.5% 5.5% , ,000 Workers who have left industry 605,000 0% November '10 November '14 Construction Total 0.00 Decrease in construction unemployment Change in construction employment Source: Author, from BLS

19 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 62% Project managers/supervisors 48 Estimators 32 Source: AGC Member Survey, Sept

20 December 2010 = 100 Material & labor costs vs. nonresidential building prices 12/10-11/ PPI for nonres buildings 11/13-11/14: 2.2% PPI for materials 11/13-11/14: 0.6% ECI (empl. cost) 9/13-9/14: 1.3% NHCCI 6/13-6/14: -0.8% / Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI); Federal Highway Administration for NHCCI

21 Producer price indexes for key inputs, 12/10-11/14 (Dec. 2010=100) 140 Steel mill products 140 Copper & brass mill shapes / Latest 1-mo. change: -0.3%, 12-mo.: 2% 80 12/ Latest 1-mo. change: 0.03%, 12-mo.: -3% 140 Gypsum products 140 Lumber & plywood /10 12/ Latest 1-mo. change: 0.3%, 12-mo.: 11% Latest 1-mo. change: -1.0%, 12-mo.: 4% Source: Author, based on BLS producer price index reports

22 Producer price indexes for key inputs, 12/10-11/14 (Dec. 2010=100) 140 Diesel fuel 140 Concrete products / Latest 1-mo. change: -4.2%, 12-mo.: -11% 80 12/ Latest 1-mo. change: 0.7%, 12-mo.: 4% 140 Plastic construction products 140 Asphalt paving mixtures & blocks /10 12/ Latest 1-mo. change: -0.1%, 12-mo.: 2% Latest 1-mo. change: 0.0%, 12-mo.: 2% Source: Author, based on BLS producer price index reports

23 Best prospects for 2015 Multifamily Manufacturing, esp. petrochemical, oil/gas supply Oil & gas fields Pipelines Warehouses Lodging (hotels & resorts) Rail Data centers Source: Author 23

24 Trends: Total construction spending: +6% to +10% per year less SF housing, retail; declining public spending new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults Materials costs: 0 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 24

25 Summary for 2013, actual 2014 forecast Total spending 6% 5-7% 6-10% Private residential 20% 5-7% 1-10% nonresidential 1% 10-13% 1-10% ann. avg. forecast Public -3% -1 to +2% near 0 Materials PPI 1.3% -1 to 0.5% 0-3%; rare spikes Employment cost index 2.0% 2-2.5% 2.5-5% Source: 2012: Census, BLS; : Author s ests. 25

26 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 website: webinars 26