Construction Spending, Labor & Materials Outlook. July 5, 2016 Ken Simonson Chief Economist, AGC of America

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1 Construction Spending, Labor & Materials Outlook July 5, 2016 Ken Simonson Chief Economist, AGC of America

2 Construction spending & employment, $1,250 $1,000 Total spending, Feb. 06 (peak) Apr. 16 billion $, seasonally adjusted annual rate (SAAR) $1.21 trillion $1.13 trillion (6% below peak) Total Total employment, Apr. 06 (peak) May 16 9,000 7,500 6,000 thousands, seasonally adjusted 7.7 million 6.6 million Total (14% below peak) $750 Private Residential 4,500 Nonres (9% below peak) $500 Private nonresidential 3,000 Residential (24% below peak) $250 Public 1, April 2015 April 2016: total 5% private res. 8%, private nonres. 3%, public 1% May 2015 May 2016: total 3.4% residential 5.2%, nonresidential 2.3% Source: U.S. Census Bureau (spending); Bureau of Labor Statistics (employment)

3 Nonresidential segments: 2015 actual, forecast 2015 vs Jan. May 16 vs Nonresidential total (public+private) 7 % 7% 2 7% 2 6% Power (incl. oil &gas field structures, pipelines) Highway and street Educational Manufacturing to 0 <0 Commercial (retail, warehouse, farm) Office Transportation Health care Sewage and waste disposal 5 2 Lodging <0 Other amusement; communication; religious; public safety; conservation; water: 11% of total 9 3 Source: U.S. Census Bureau construction spending report; Author s forecast

4 $120 $90 $60 $30 Construction spending: industrial, heavy annual total, ; monthly, SAAR, 1/14 4/16; billion $ Power (90% public) Electric Oil & Gas Apr. '15 Apr. '16 change: 1% (oil & gas 6%; electric 3%) $100 $75 $50 $25 Manufacturing (99% public) Other Chemical Apr. '15 Apr. '16 change: 10% (chemical 17%; other 2%) Transportation facilities (66% public) $50 $40 $30 $20 $10 Apr. '15 Apr. '16 change: 1% (private 11%; public 6%) Public Private $50 $40 $30 $20 $10 Communication (99.5% private) Apr. '15 Apr. '16 change: 16%

5 Key points: power, mfg., transportation Solar, wind power are growing again; expect more gas fired plants, natural gas pipelines into 18 Mfg growth led by chemicals (petrochemical plants, ethane crackers, LNG) and transportation equipment (cars, trucks, jets, railcars, barges); but few new starts; cuts in plants tied to farming, mining, exports Private (mainly rail) investment in transportation will decline; small gains for public airports, ports, transit Source: Author

6 $120 $90 $60 $30 Construction spending: public works annual total, ; monthly, SAAR, 1/14 4/16; billion $ Highways (99.5% public) Apr. '15 Apr. '16 change: 4% $30 $20 $10 Sewage/waste (97% public) Apr. '15 Apr. '16 change: 1% $30 $20 $10 Amusement & recreation (50% public) Private Public Apr. '15 Apr. '16 change: 8% (private 12%; public 5%) $30 $20 $10 Water supply (99% public) Apr. '15 Apr. '16 change: 6%

7 Key points: roads, recreation, sewer/water Highway funds benefit from more travel, hence fuel purchases; gradual pick up in state funding & P3s Amusement & recreation spending is very lumpy a few big stadiums at irregular intervals; but funding for local, state, federal parks keeps eroding Eastern & Midwestern cities under orders to make long term upgrades to sewer systems that should boost spending; water utilities hurt by drought, conservation but may get money for lead abatement Source: Author

8 Construction spending: institutional (private + state/local) annual total, ; monthly, SAAR, 1/14 4/16; billion $ $100 $80 $60 $40 $20 Total education (79% public) Apr. '15 Apr. '16 change: 5% Education (state & local K 12, higher; private) $100 $75 $50 $25 S/L prek 12 S/L higher ed Private Latest: state/local prek 12 15%, higher 9%; private 9% $50 $40 $30 $20 $10 Total healthcare (77% private) Apr. '15 Apr. '16 change: 1% $50 $40 $30 $20 $10 Hospitals (private, state & local) State & Local Apr. '15 Apr. '16 change: private 1%; state & local 8% Private

9 Key points: education & health care Higher ed enrollment is shrinking, so colleges need fewer dorms & classrooms; apts. (MF) replacing dorms (ed.) PreK 12 enrollment is flat; more children staying in cities and filling underused or charter schools, so construction no longer matches population growth Hospitals face more competition from standalone urgent care, outpatient surgery, clinics in stores; more investment in small facilities, short stays Source: Author

10 $80 $60 $40 $20 Construction spending: developer financed annual total, ; monthly, SAAR, 1/14 4/16; billion $ Retail (private) Apr. '15 Apr. '16 change: 1% $80 $60 $40 $20 Office (88% private) Total Private Public Apr. '15 Apr. '16 change: 20% (private 24%; public 4%) $40 $30 $20 $10 Warehouse (private) Apr. '15 Apr. '16 change: 22% $50 $40 $30 $20 $10 Lodging (private) Apr. '15 Apr. '16 change: 25%

11 Key points: retail, warehouse, office, hotel Retail now tied to mixed use buildings & renovations, not standalone stores or shopping centers; consumer pivot to online buying will continue Warehouse market still benefiting from e commerce; may heat up if Panama Canal leads to distribution shifts Employment sets records each month but office space per employee keeps shrinking; growth mainly in cities & renovations, not suburban office parks Hotel construction likely to drop as revenue per available room declines Source: Author

12 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

13 Billion $ ($ B) Private residential spending: MF continues to outpace SF $500 $400 $300 $200 $100 seasonally adjusted annual rate (SAAR): Jan. 11 ($238 B) Apr. 16 ($440 B) Multifamily (MF) (May 16: $60 B) Single family (SF) (May 16: $237 B) Improvements (May 16: $142 B) 12 month % change 12 month % change: January 2011 ( 5.3%) April 2016 (8.0%) 60% 40% 20% 0% 20% Multifamily: 21% Single family: 13% Total: 8% Improvements: 3% Source: U.S. Census Bureau construction spending reports

14 2016 residential spending forecast: 5 9% SF: 6 9%; ongoing job gains add to demand; student debt, fears of lock in, limited supply will cap growth MF: 8 12%; growth is slowing but should last through 2017 low vacancies, high rent growth encourage investors millennials show continued preference for cities nearly all MF construction is rental, not condo Improvements: 0 10%; Census data is not reliable and shows only a loose relationship to SF spending Source: Author

15 Population change by state, July 2014 July 2015 (U.S.: 0.79%) decrease % % % 1.5%+ 1.5% 1.5% 1.9% 0.9% 1.2% 1.5% 1.7% 0.9% 0.3% 1.9% 0.02% 2.3% 0.6% 0.7% 0.3% 0.8% 0.6% 0.2% 0.2% 0.1% 0.5% 0.1% 0.1% 0.2% 0.3% 0.3% 0.3% 0.7% 0.3% 1.0% 0.8% 0.4% 1.4% 1.2% 0.04% 0.3% 0.1% CT 0.1% DE 1.1% MD 0.5% NH 0.2% VT 0.1% MA 0.6% RI 0.1% NJ 0.2% DC 1.9% 0.2% HI 0.8% 1.8% 0.5% 1.8% Source: U.S. Census Bureau

16 State construction employment change (U.S.: 3.9%) 4/15 to 4/16: 42 states + DC up, 2 unchanged, 6 down Over 10% 5.1% to 10% 0.1% to 5% 0% 0.1% to 5% 5.1% to 10% Over 10% 7% 6% 7% 10% 8% 5% 7% 1% 10% 0% 8% 13% 5% 2% 5% 5% 7% 13% 5% 5% 8% 2% 4% 5% 3% 0% 0.5% 1% 5% 8% 1% 5% 7% 1% 4% 0.2% 1% CT 4% DE 3% MD 7% NH 6% VT 10% MA 10% RI 7% NJ 2% DC 1% 10% HI 18% 2% 4% 7% Shading based on unrounded numbers Source: BLS state and regional employment report

17 Metro construction employment change 4/15 to 4/16: 235 metros up, 56 unchanged, 67 down Over 10% 5.1% to 10% 0.1% to 5% 0% 0.1% to 5% 5.1% to 10% Over 10% Source: BLS state and regional employment report

18 Hardest positions to fill % of respondents who are having trouble filling ALL Hourly craft professionals Carpenters Sheet metal installers Concrete workers Electricians 63% 60% 65% 73% 79% ALL Salaried professionals Project mgrs/supervisors Estimators Engineers 34% 43% 52% 55% 0% 25% 50% 75% 100% Source: AGC Member Survey, Sept. 2015

19 How contractors are coping with worker shortages Providing incentives/bonuses Increasing contributions/benefits Paying more overtime Increasing compensation Raising base pay 4% Increasing use of: Subcontractors 43% Staffing company 33% Labor saving equipment, tools, machinery 19% Lean construction 13% Offsite prefabrication 9% Unions 9% Building information modeling (BIM) 7% 16% 23% 23% 23% 29% 48% Hourly Salaried 56% 0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60% Source: AGC Member Survey, Sept. 2015

20 Unemployed construction workers, May 2000 May 2016 (not seasonally adjusted) 2,500,000 2,000,000 1,500,000 1,000, , , Source: BLS monthly employment situation report

21 Producer price indexes for key inputs, 1/11 5/16 (Jan. 2011=100) Gypsum products 150 Copper & brass mill shapes Latest 1 mo. change: 1.1%, 12 mo.: 2% Latest 1 mo. change: 2.0%, 12 mo.: 16% 150 Flat glass 150 Aluminum mill shapes Latest 1 mo. change: 0.5%, 12 mo.: 8% Latest 1 mo. change: 1.1%, 12 mo.: 8% Source: Author, based on BLS producer price index reports

22 Producer price indexes for key inputs, 1/11 5/16 (Jan. 2011=100) 150 Diesel fuel 150 Concrete products Latest 1 mo. change: 18%, 12 mo.: 28% Latest 1 mo. change: 0.3%, 12 mo.: 3% 150 Paving mixtures 150 Steel mill products Latest 1 mo. change: 2.6%, 12 mo.: 8% Latest 1 mo. change: 4.6%, 12 mo.: 5% Source: Author, based on BLS producer price index reports

23 Summary for 2015, forecast 2015 actual 2016 yr todate forecast Total spending 11% 8% 3 8% 2 7% Private residential 17% 10% 4 10% 3 8% nonresidential 8% 9% 3 8% 2 7% Public 5% 4% 1 5% 1 5% Goods & serv. inputs PPI 2% 2% 0 2% 0 2% Employment cost index 2.2% 2.3% 3 4% 3 4.5% Source: actuals: Census, BLS; forecasts: Author s estimates

24 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