market demand management

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MARKET INTELLIGENCE

Quarterly Economic Outlook May 2015

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Market Metrics

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Key Performance Measures

Past Looking Indices

• United States Census Bureau

New Residential Construction

Housing Units Completed

Housing Units Started

Total Construction Spending

Commercial Construction Spending

Residential Construction Spending

Manufacturing Construction Spending

Forward Looking Indices

• American Institute of Architects

Architecture Billings Index

New Projects Inquiry

• McGraw Hill Construction

Dodge Momentum Index

Building Planning Index

• National Association of Home Builders

Housing Market Index

Remodeling Market Index

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Housing Market Snapshot

Housing Starts (March 2015) Total: 926↑ Single: 618,000↑ Multi: 308,000↓

Home Sales* (March 2015) New: 481,000↓ Existing: 5.19 million↑

Median Home Prices (March 2015) New: $277,400↓ Existing: $213,500↑

*Seasonally Adjusted Annual Rate; Arrows indicate direction from previous month for starts and sales and year for prices.

NAHB/Wells Fargo Housing Market Index – The index, which measures builder confidence in the market for newly built single-family homes, rose four points to 56 in April from a March reading of 52. Any number over 50 indicates that more builders view sales conditions as good than poor. NAHB Chief Economist David Crowe’s analysis: “As the spring home buying season gets into full bloom, home builders are confident that current low interest rates and continued job growth will draw consumers to the market. At the same time, builders are being careful not to add inventory beyond expected demand, especially as they struggle with increasing costs for lots and labor. Looking beyond the spring, pent-up demand, a growing economy and attractive mortgage rates will keep the housing market moving forward throughout 2015 and into next year.”

Market Overview The Dodge Momentum Index

(Year 2000=100)

Apr-15 Mar-15 % Change

Dodge Momentum Index 122.6 121.6 0.8%

Commercial Building 134.0 133.3 0.5%

Institutional Building 108.5 107.2 1.2%

Source: Dodge Data & Analytics

Quarter Growth 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2 Real GDP 4.52% 3.50% -2.11% 4.59% 4.97% 2.22% -0.75%

Architecture Billings Index Avg 53.6 50.0 50.0 51.9 54.7 52.3 50.7

U.S. Housing Starts YTD 20.2% 18.5% -1.0% 6.3% 9.6% 8.5% 3.7% 5.5%

Residential Construction Spending YTD 21.0% 19.3% 12.8% 9.3% 5.8% 3.5% -0.8%

Commercial Construction Spending YTD 5.7% 7.7% 6.8% 8.9% 11.3% 12.3% 14.2%

Dodge Momentum Index Avg 105.2 108.3 109.7 115.4 113.3 123.9 122.2 122.6

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The Architecture Billings Index is the 3-month average of the

billings index reported by the American Institute of Architects.

The YTD calculations are year on year growth for the

designated quarter.

Regional Quarterly Synopsis

Quarter Growth 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2

Midwest Architecture Billings Index Avg 51.5 50.1 46.9 51.5 53.4 51.7 50.7

Northeast Architecture Billings Index Avg 53.1 46.7 46.2 47.2 54.9 46.4 53.9

South Architecture Billings Index Avg 53.4 52.5 53.0 56.5 55.2 57.7 46.6

West Architecture Billings Index Avg 55.5 53.1 50.8 48.2 53.4 53.9 48.8

Midwest Housing Starts YTD 20.7% 17.1% -4.6% 19.3% 14.0% 8.6% 8.3% 1.0%

Northeast Housing Starts YTD 21.5% 21.6% 20.8% 16.3% 16.2% 13.2% -24.1% -0.3%

South Housing Starts YTD 18.7% 16.6% -4.2% 2.1% 7.4% 7.1% 5.5% 4.7%

West Housing Starts YTD 23.2% 22.7% -0.6% 3.9% 8.7% 9.4% 11.0% 12.4%

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National & Regional Rates of Change

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2

Yo

Y C

han

ge

Quarterly YTD Housing Construction Trends

Residential Construction Spending YTD U.S. Housing Starts YTD Midwest Housing Starts YTD

Northeast Housing Starts YTD South Housing Starts YTD West Housing Starts YTD

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American Institute of Architects

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About the Architecture Billings Index

The Architecture Billings Index (ABI) is a diffusion index derived from the monthly Work-on-the-Boards survey, conducted by the AIA Economics & Market Research Group. The ABI serves as a leading economic indicator that leads nonresidential construction activity by approximately 11 months. The indexes are developed from the monthly Work-on-the-Boards survey, where survey panelists are asked to report whether billings during the previous month significantly increased, remained about the same, or significantly decreased from the prior month. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month. If an equal share of firms report an increase as report a decrease, the score for that month will be 50. A score above 50 indicates that firms in aggregate are reporting an increase in activity that month compared to the previous month, while a score below 50 indicates that firms are reporting a decrease in activity.

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Best Relationships Between National or Sector

ABI and Relevant Construction

Spending Measure Range from 10 to 12 Months

ABI lead over

construction spending

Correlation

Total construction

spending on

nonresidential buildings

10 months 0.846

11 months 0.851

12 months 0.849

Spending on

commercial/industrial

buildings

10 months 0.812

11 months 0.823

12 months 0.818

Spending on Institutional

buildings

6 months 0.716

7 months 0.723

8 months 0.719

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Note: ABI presented as three-month moving average;

construction spending presented on three months moving

averages and year-over-year percent change

Cyclical Patterns Match Best When ABI Is Shifted Forward

11 Months

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Commercial/Industrial ABI Lead Over

Commercial/Industrial

Construction Spending Is 11 Months

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7 Months Is Best Lead for Institutional

ABI Over Institutional Construction

Spending

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More Positive Business Conditions Resume in March

Graphs represent data from January 2009 – March 2015.

National

0

10

20

30

40

50

60

2009 2010 2011 2012 2013 2014 2015

Architecture Billings Index (50 = No Change, Above 50 = Growth, Below 50 = Decline)


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Severe Weather Continues to Slow Project Activity in the Northeast

Graphs represent data from January 2010 – March 2015 across the

four regions. 3-month moving average.

Regional

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015


Midwest South Northeast West

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Institutional Activity Remains Encouraging

Graph represents data from January 2010 – March 2015 across the four sectors. 3-month moving average.

Sector

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015


Commercial/Industrial Multi-Family Residential Mixed Practice Institutional

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McGraw-Hill

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What is the Dodge Momentum Index?

The Dodge Momentum Index is a unique 12-month leading indicator of construction spending for nonresidential building. The index is designed to specifically focus on patterns within the commercial and institutional segments of the industry and uses first issued planning Dodge Report information on construction projects as a leading indicator of the future direction of construction spending. This unique approach differentiates the Dodge Momentum Index from all other indices in the market today. Additional details are available for the overall commercial and institutional sectors, and the sub-sectors of office buildings, retail and warehouse buildings, and education buildings.

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Source: Dodge Data & Analytics

* Dodge Momentum Index includes nonresidential buildings,

except manufacturing.

Dodge Momentum Index*

50

75

100

125

150

175

200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dodge Momentum Index (Year 2000=100)

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Early expansion: The period of acceleration in the pace of economic activity. This is the phase in the cycle when the economy is recovering from the last downturn and expanding into a period of new growth.

Peak growth: The point where the rate of growth reaches its high point for that cycle.

Late expansion: After the economy reaches a point of peak growth, growth begins to slow.

Market peak: The point when actual economic output (not the rate of growth) is at its peak for that cycle.

Early contraction: The phase immediately after the market peak when slow growth transitions to a period of accelerating decline.

Peak decline: The point of a business cycle where the rate of decline is at its steepest.

Late contraction: The period when the pace of decline begins to slow.

Market trough: The point when economic output is at its lowest for that cycle.

National Spending on

Nonresidential Buildings

Is Extremely Cyclical

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Note: Nonresidential construction categories covered include those referenced in Appendix A.

Source: U.S. Department of Commerce, Construction Spending Put-in-Place, from 8/1/2013 release.

National spending ($billion) and annual

percent change in spending on

nonresidential buildings

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The Current Business Cycle

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Residential & Commercial Forecasted Growth

Forecast

-

200

400

600

800

1,000

1,200

1,400

1,600

0

500

1000

1500

2000

2500

3000

3500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Tho

usa

nd

s o

f U

nit

s

Mill

ion

s o

f Sq

r Ft

Year

Com & Ind Con Starts Sqr Ft Resi Con Starts Sqr Ft Resi Con Unit Starts

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Residential & Commercial Construction Starts

Forecast

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Bill

ion

s o

f D

olla

rs

Year

Com & Ind Con Starts Val Residential Con Starts Val

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The Wall Street Journal

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New-Home Market Starting to Simmer

• “New-home sales climbed 6.8% from March to a seasonally adjusted annual rate of 517,000, the Commerce Department said Tuesday.

• So far this year, builders are averaging just more than 1 million starts, not much different from 2014.

• Woodside Homes, a closely held builder operating in five western and southern states, sold 453 homes in the first quarter, up 30% from a year earlier.

• So far this year, monthly sales of new homes have averaged 515,000, a pace that if continued would mark the best since the first half of 2008. During the past year, new-home purchases are up 26.1%. The market in April had 4.8 months of supply of new homes, reflecting how long it would take to exhaust existing inventory at the April sales pace.

• New-home sales reflect about one-tenth of all home purchases. The April figure has a margin for error of plus or minus 15.8%.”

A2 | Wednesday, May 27, 2015: Jeffrey Sparshott

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Appendix

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The NAHB-Wells Fargo Housing Market Index

• The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

• The HMI is a weighted average of separate diffusion indices for these three key single-family series. The first two series are rated on a scale of Good, Fair and Poor and the last is rated on a scale of High/Very High, Average, and Low/Very Low. A diffusion index is calculated for each series by applying the formula “(Good-Poor+100)/2” to the present and future sales series and “(High/Very High – Low/Very Low + 100)/2” to the traffic series. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

• Based on this calculation, the HMI can range between 0 and 100.

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National Association of Home Builders

market demand management

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