Construction Spending, Labor & Materials Outlook

NMHC Student Housing Conference

New Orleans, October 2, 2013

Ken Simonson

Chief Economist, AGC of America

simonsonk@agc.org

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

• ‘Shale gale’

• Panama Canal expansion

• Residential revival

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

2 Source: Author

$0

$400

$800

$1,200

2008 2009 2010 2011 2012 2013

Bill

ion

$

Construction spending (seasonally adjusted annual rate—SAAR )

3 Source: Census Bureau construction spending reports

$0

$150

$300

$450

2008 2009 2010 2011 2012 2013

Bill

ion

$

Private Residential Private Nonres Public

-10%

0%

10%

20%

30%

2011 2012 2013

12

mo

nth

% c

han

ge

Private nonres, residential & public, 1/08-7/13

-10%

0%

10%

20%

30%

2011 2012 2013

12

mo

nth

% c

han

ge

Private Residential Private Nonres Public

Total construction, 1/08-7/13 (billion $)

Latest 1-month change: 0.6% Latest 1-mo: (0.6%) (1.3%) (-0.3%)

Latest 12-month change: 5.2% Latest 12-mo: (17.2%) (2.0%) (-3.7%)

12-month % change, 1/11-7/13 12-month % change, 1/11-7/13

Public

Private Nonres

Private Residential

Private residential spending is still rising—for now

-30%

-15%

0%

15%

30%

45%

60%

75%

2011 2012 2013

12-month percent change in private single- and multifamily spending, 1/11-7/13

Source: Census Bureau construction spending reports 4

Latest 12-mo: MF: 39% SF: 29%

Single-family

Multifamily

Nonres totals (billion $, SAAR), share & 12-month change

7/13 Total Share 7/12-7/13

Nonresidential $560 billion 100 % -1 %

Power (incl. oil & gas structures, pipelines) 89 16 6

Educational 80 14 -10

Highway and street 78 14 -4

Commercial (retail, warehouse, farm) 47 8 2

Manufacturing 47 8 0

Transportation 43 8 11

Health care 42 7 -1

Office 37 7 -2

Sewage and waste disposal 21 4 4

Communication 16 3 -13

Lodging 15 3 30

Other (amusement; water; public safety; conservation; religious): 8% of total -7

5 Source: Census Bureau construction spending report

• Private sector added jobs since 2010, construction only since 1/11

• Construction unemployment fell faster than industry added jobs

• Thus, workers are leaving for other sectors, school, retiring

6,233,000

266,000

-725,000

-1 0 1 2 3 4 5 6 7

Nonfarm empl.

Const. empl.

Const. unem.

In Millions

Change in unemployment & employment (Not seasonally adjusted, August 2010-August 2013)

Construction vs. overall (un)employment, 8/10-8/13

6 Source: BLS employment, unemployment reports

17.3%

9.1% 11.3%

7.3%

0%

5%

10%

15%

20%

25%

August '10 August '13

Construction Total

Unemployment rates (August 2010-August 2013)

Source: BLS state and regional employment report

1%

5%

1%

3%

1%

-5%

17%

1%

8%

10%

3%

5%

-7%

3%

-3%

3%

6%

2%

8%

8%

7%

1%

1%

-1%

-7%

-1%

0.4%

12% -2%

-4%

2%

0.3%

2%

-1%

4%

5%

4%

-3%

2%

4%

HI 12%

6%

VT -4%

CT 5%

RI -5%

DE -4%

NJ 4%

MD 3%

DC -3%

NH 9%

Over -10% -5.1% to -10% -0.1% to -5% 0.1% to 5%

MA 4%

State construction employment change (U.S.: 3.0%) 7/12 to 7/13: 37 states up, 13 + DC down

5.1% to 10%

7

Over 10%

Shading based on unrounded numbers

0%

12-Month Percent Change in State Construction Employment (seasonally adjusted), January 2010-June 2013 Legend Over -10% -5.1 to -10% -0.1% to -5% 0% 0.1% to 5% 5.1% to 10% Over 10%

State 2010 2011 2012 2013

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware*

District of Columbia*

Florida

Georgia

Hawaii*

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland*

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska*

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota*

Tennessee*

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Construction employment, July 2013 vs. peak • US: construction -25% (-1.9 million);

private nonfarm -1% (-1.4 million)

• States: only LA & ND at new peak, 46 states more than 10% below

• Metros: only 19 of 339 at new July peak, not seasonally adjusted

9 Source: Author, from BLS national and state & area employment data (www.bls.gov/ces, www.bls.gov/sae)

F

Peak

Off less than 10%

Off more than 10%

Hardest positions to fill (% of respondents that are having trouble filling)

10 Source: AGC Worker Shortage Survey, Aug. 2013

Professional - any 53%

Project managers/supervisors 49

Estimators 35

Engineers 15

No trouble/not hiring 47

Craft - any 74%

Laborers 35

Carpenters 34

Equipment operators 31

No trouble/don’t employ crafts 26

10%

0%

5%

10%

15%

20%

Spending Total hours worked

% c

han

ge 1

/11

-7/1

3

Construction spending, labor & prices, 1/11-7/13 Spending +19% but jobs only +7%. How do they do it?

• Contractors charging slightly more: PPI +6% (industrial buildings)

• More hours per worker: aggregate hours +10% (+3% per employee)

• Implication: further spending growth will trigger bigger pickup in hiring

11 Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

19%

7%

0%

5%

10%

15%

20%

Spending Employment

% c

han

ge 1

/11

-7/1

3

19% total

6% price change

12% real

Material & labor costs vs. office & highway bid prices, 12/10-8/13

PPI for materials

ECI

NHCCI

PPI for offices

100

102

104

106

108

110

12/10 2011 2012 2013

De

cem

be

r 2

01

0 =

10

0

12 Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI); Federal Highway Administration for National Highway Construction Cost Index (NHCCI)

Producer price indexes for key inputs, 1/11-8/13 (January 2011=100)

13 Source: Author, based on BLS producer price index reports

80

100

120

140

2011 2012 2013

Steel mill products

80

100

120

140

2011 2012 2013

Copper & brass mill shapes

80

100

120

140

2011 2012 2013

Gypsum products

80

100

120

140

2011 2012 2013

Lumber & plywood

Producer price indexes for key inputs, 1/11-8/13 (January 2011=100)

14 Source: Author, based on BLS producer price index reports

85

100

115

130

2011 2012 2013

No. 2 diesel fuel

85

100

115

130

2011 2012 2013

Concrete products

85

100

115

130

2011 2012 2013

Asphalt paving mixtures & blocks

85

100

115

130

2011 2012 2013

Prepared asphalt & tar roofing & siding materials

Summary for 2013 • Private nonres spending +5 to +10% (vs. 16% in ‘12): more

manufacturing, warehouse, data centers; remodels of hotels, office, retail; flat power, health care, private ed

• Res +15% to +20% (vs. 15% in ‘12): MF very strong, SF ??

• Public: -3 to -6% (vs. -3% in ‘12): highways 0%, ed -5%; federal spending-down; states-level; local-small decline

• Total construction spending: +5 to +10% (vs. 9% in ‘12)

• Materials costs: +1 to +3% Dec.-Dec. (vs. 1.4% in ‘12)

• Labor costs: +2% to +3.5% Dec.-Dec. (vs. 1.6% in ‘12)

• Labor supply: limited craft, professional shortages

15 Source: Author

Trends: 2014-2017 • 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: +3% to +8% (vs. 2% to 3% for CPI)

• Labor costs: +2% to + 4%

• Labor supply: widespread shortages possible due to retirements, competition from other sectors, fewer vets

16 Source: Author

AGC economic resources (email simonsonk@agc.org)

• The Data DIGest: weekly 1-page email (subscribe at: www.agc.org/datadigest)

• 5 monthly press releases: national, state, metro employment; spending; PPI

• State and metro data, fact sheets

• Website: http://www.agc.org/Economics

17