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Cement & Construction Outlook
Missouri Concrete Association
Summer Meeting
July 26, 2008
Dave Zwicke, PCA Regional Economist
Overview
 The economy is weak….Recession?
 Broader Economy……
 Cement Industry…..
 Fiscal & Policy actions will not avert a recession
 Fiscal Policy will not impact GDP as expected
 Consumer Debt, Energy Costs

Lending aversion toward risk is spreading
 Credit markets are tighter
 Both Consumer and Commercial impacts beginning to emerge
What Happened?
“To determine the cause of a slowdown in economic growth, or
even a recession look no further than the excesses and
imbalances created during the preceding boom period”
 Debt played important role in 2003-2006 growth
 Responsible debt?
 Easy terms & standards
 Unprecedented link to housing wealth
 Payback is tough – maybe more than consensus
 Was aggressive subprime lending responsible debt?
 Tighter credit
 Housing price collapse
What are the Two Key Questions?
 How deep will industry retrenchment go ?
 How long will it last ?
Portland Cement Consumption
000 MT
Declines Continue
Through 2009.
Peak (2005)-to-Trough (2009) Decline:
30 MMT (Worst in History)
(On a Percentage Basis: Equal to 1980-82 Recession)
Outlook
 Double-digit declines in consumption with trough in 2009
 Large capacity increases in the pipeline magnify potential
market imbalances
 Imports record large, sustained declines
 Global demand conditions suggest high freight rates
 2008 bears most of the burden of market imbalance
 Utilization Rates decline
 Materializes to a greater extent in 2009
 Inventory levels remain above historical averages

Past peak (2005) not realized until 2014
Economic Outlook
Threats to Economic Growth

Continued Residential Weakness
 Foreclosures rising --- Prices falling
 Consumer spending declining

Credit Markets
 Credit markets remain tight
 Tight credit conditions negatively impact
residential and nonresidential investment

Energy Prices
 High gas prices continue to stress the consumer
 Commodity costs on the rise
States in Recession
As of May, 2008
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
Recession
GA
At Risk
LA
TX
AK
FL
HI
Source: PCA/Economy.com
Growing
The Stage is Set…
Unemployment Rate -- % Change Year Ago
Source: BLS
= Recession
Employment declines …
Change in payroll jobs (000)
400
300
Period of
slowed hiring
200
100
0
2007: + 1,096,000
-100
YTD: -438,000
-200
2005
Source: BLS
2006
2007
2008
5 year
Average
Employment Declines are Regional
June Year-to-date
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
Loss
GA
Flat
LA
TX
AK
FL
HI
Source: BLS
Gain
Housing has been the catalyst…
Units (000)
Source: Census, S&P Case Shiller
Annual Growth
Consumers feel the crunch…
Annual Percent Change
Consumer Pessimism Growing
1985=100
Source: Conference Board
Monetary Policy
Federal Funds Rate
Recession
Risks Prompt
Fed Rate Cuts
Rising Inflation
Forces a Policy
Reversal
Long Recognition Lag By Fed…Forcing More Aggressive Policy Posture
Fiscal Stimulus
 Impacts 2nd half 2008 – 1st half of 2009
 $150 Billion Rebates
 Expected to reduce depth and duration of recession
 Fiscal policy may shorten economic downturn and accelerate
recovery…but it will NOT AVERT the recession
Energy Prices may offset fiscal stimulus…
Unleaded Gas, $ Per Gallon
Every 1 Cent Increase at the
Pump Takes $1 Billion Out
of Consumer’s Pockets on
an Annualized Basis
Since January 1st, Gasoline
Prices have increased $1.33
cents = Equating to a $130
Billion Annualized Draw on
Consumer Spending
Source: Department of Energy
Economic Growth
Percent Change, GDP Growth Rate
Tax Rebate
Bump
Residential Construction
Cement Composition - Missouri
2005
Public
2009
Residential
Nonresidential
Mortgage Rates
Composite contract rate %
Fed
began
cutting
rates
Easy Credit Period
Foreclosures on the rise…
% of loans 90 days past due, SA
Source: Mortgage Bankers Association
Foreclosures are concentrated…
Below U.S.
Near U.S.
Above U.S.
Source: Equifax, Economy.com
% of households defaulting on their 1st mortgage, 08Q1
US: 1.8%
Home Prices will stabilize in late 2009
Existing Single Family Homes
High Inventories Will Depress Prices
Throughout 2008
National Housing Starts
000 Units
Missouri Housing Market
Annual % Change -- Single Family Median Home
Source: National Association of Realtors
Single Family Housing– Missouri
000 Permits
31% Decline: 2007, Similar Decline in 2008...
Recovery 2010
Nonresidential Construction
Nonresidential Construction

Nonresidential Strength in 2006-2007
 Favorable ROI supported by active investment
environment
 Pent-up Commercial Demand
 Easy Credit Conditions

Nonresidential Softening in 2008-2009
 ROI Softens With Overall Economic Weakness
 Credit Conditions Tightening
 Risks and Uncertainty Grow
Financial Liquidity
Sub Prime
TED Spread – Difference between 3m T-Bill & LIBOR
Nonresidential Construction
Annual Percent Change
Dodge Data Has Already Signaled a Decline
Nonresidential Construction
$1996, Millions
Industrial Vacancy Rates
Percent Vacant
Source: CB Commercial
Office Vacancy Rates
Percent Vacant
Dot Com
Bubble
Source: CB Commercial
Public Construction
Cement Composition - Missouri
2005
Public
2009
Residential
Nonresidential
Highway Construction
$1996, Millions
2008: -2.8%
2009: -3.5%
2010: -2.3%
Fiscal 2009 Revenue Outlook
District of
Columbia
Pessimistic
Concerned
Source: National Conference of State Legislatures
Stable
Optimistic
Competitive Opportunity?
Producer Price Index, 2003=100
Source: BLS
Missouri Cement Market
Total Cement Consumption - Missouri
Thousands, Metric Tons
2008: --13.5%
2009: --9.6%
2010: +2.1%
Long Term Cement Consumption
Thousands Metric Tons
Missouri
2007: 2.4 MMT to 2030: 3.7 MMT
Missouri Cement Market
000 Metric Tons
Cement Capacity
Portland + Masonry Cement
Cement Consumption
Regional Capacity Expansions
Thousands of Metric Tons
New
State
Company
Year
Capacity
Arkansas
Ash Grove Cement
2009
630
Missouri
Continental Cement
2008
540
Holcim
2009
3,960
Buzzi Cement
2009
900
Direct Shipments Survey
User Group
2005
2006
2007
Ready-Mix
82%
82%
82%
Street & Highways Contractors
8%
7%
8%
Building Materials Dealers
2%
2%
2%
Pre-Cast
3%
2%
2%
All Other
2%
4%
3%
Brick & Block
3%
3%
3%
Source: PCA Market Research
Long Term Cement Conclusions

Growth Outlook Favorable



Discount current short-term business cycles
Population and economic growth support
consumption
“Green” advantages of concrete will add to
demand
Cement & Construction Outlook
Missouri Concrete Association
Summer Meeting
July 26, 2008
Dave Zwicke, PCA Regional Economist