Transcript Welcome Insert Title Here - Portland Cement Association
Cement Outlook
PCA’s Fall Board Meeting November 2011
Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
Portland Cement Consumption Thousand Metric Tons
140 450 120 450 100 450 80 450 60 450 40 450 20 450 450 1998 2000 2002 2004 2006 Summer Forecast Fall Forecast 2008 2010 2012 2014 2016
Economic Outlook
Synchronized Recovery Theory
Job creation determines how quickly the recovery cycle spins.
Heals Structural Restraints Incremental Demand Gains
In the context of moderating productivity Gains Leads to: Defaults & perceived lending risks decline
Lending Standards Ease & Hiring Accelerates Sentiment Gains Job Gains
Sentiment includes Consumer, Business & Banks:
False Hopes: Net Job Creation
Annualized Net Job Creation 8000 6000 4000 2000
3.7 Million Annualized 3 month Moving Average
0 -2000 -4000 -6000 -8000 -10000 -12000 Jan 2005 Jan 2007 Jan 2009
2.7 Million Annualized 3 month Moving Average
Jan 2011
Real GDP Outlook Annualized Growth 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3
Employment Outlook
Annual Change, Thousands Employed 3000 2000 1000 0 -1000 -2000 -3000 -4000 -5000 -6000
Source: BLS
2000 2002 2004 2006 2008 2010 2012 2014 2016
Recession Recoveries: 3 Years Following, Annual Average 1991: 3.08 Million, 2001: 2.22 Million, Current: 1.35 Million
Housing Recovery
The Residential Recovery Process
Mortgage Resets Foreclosures Bank Possessions Shadow Inventories Heightened Inventories Inventory Burn Off Price Stability Working Through Structural Repair of Housing Market Will Take Time Before Impacting Housing Starts. Starts Recovery
8000 7000 6000 5000 4000 3000 2000 2003
Single Family Sales Outlook
Thousands of Units 2004 2006 2008 2010 2012
12 10 8 6 4 2 0 2003
Single Family Months Supply
Thousands of Units 2004 2006 2008 2010
Desired Month’s Supply
2012
20%
Single Family Home Price Outlook
Y-O-Y Percent Change 15% 10% 5% 0% -5% -10% -15% -20% 2003 2004 2006 2008 2010 2012
Single Family Upside Risk?
Single Family Starts Projections Comparison Thousand Starts 2011 2012 PCA Mortgage Bankers Association NAHB National Association of Realtors Other Associations’ Average Tons Per Start Upside Risk (000 Tons) 421 420 424 416 420 19.2
-- 443 474 495 480 483 19.2
768 2013 567 619 723 --- 671 19.2
1,997
Portland Cement Consumption Thousand Metric Tons
135 000 125 000 115 000 105 000 95 000 85 000 75 000 65 000 55 000 45 000 1998 2000 2002 2004 2006 Summer Forecast Fall Forecast 2008 2010 2012 2014 2016
Nonresidential Drag
$200 000
Nonresidential Construction
Real 1996 PIP $ $180 000 $160 000 $140 000 $120 000 $100 000 $80 000 $60 000 $40 000 2003 2004 2005
Source: Dept of Commerce, PCA
2007
-50%
2008 2010 2011
Nonresidential Conclusions
No longer a significant drag on construction activity.
Large imbalances exist in before a positive NOI materializes
Slow job growth implies slow healing process
Credit environment hostile.
Conditions for positive ROI years off.
Not a significant contributor to cement consumption growth near term.
Office Buildings: Recovery Process
Leads to a recovery in office construction.
Asset Prices Firm New Office Hiring
1/5 of all jobs in the office. Defaults & perceived lending risks decline
Credit Troubles Ease Leasing Rates Stabilize Vacancy Rates Decline
After reaching threshold of roughly 14% vacancy rate
Office Employment
Thousands Employed 31 000 30 000 29 000 28 000
Vacancy Rate: 12.7% Vacancy Rate: 18.3% Vacancy Rate: 11.3%
27 000 26 000 25 000 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: BLS
Office Building Valuation
Property Value Index, 2000=100 190 170 150 130 110 90 70
-36%
50 2003 2004
Source: Moody’s
2005 2006 2007 2008 2009 2010 2011
REIT Office
Dow Jones REIT Index, Total Return, 1990=100 1 200 1 000 800 600 400 200
-69.9%
0 2003 2004 2004 2005 2006 2007 2008 2009 2010
Source: Dow Jones REIT Index
Public Recovery
State Deficits $ Real
300 000 000 200 000 000 100 000 000 0 -100 000 000 -200 000 000 1999 2001 2003 2005 2007 2009 2011 2013 2015
Source: NIPI Data National Estimates: States Do Not Heal in a Synchronized Fashion
ARRA Sterilization: State Spending
Change in Spending, Real Million 1996$ 4000 3000 2000
ARRA $ ARRA $
1000 0 -1000 -2000 -3000 76% Sterilization
State $
43% Sterilization
State $
2009 2010
ARRA Sterilization: State Spending
Change in Spending, Real Million 1996$ 4000
Increase In State Spending
3000
Reduces Adverse Impact
2000
ARRA $ ARRA $
1000 0 -1000 -2000 -3000 -4000
State $ State $ ARRA $ State $
2009 2010 2011
Discretionary State Highway Cement Consumption Thousand Metric Tons
20 000 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 1998 2000 2002 2004 2006 2008 2010 2012 2014
Highway Bill Cement Consumption Projections
Spring Versus Summer Assumptions 24 000 22 000 20 000 18 000 16 000 14 000 12 000 10 000 2002 2004 2006 2008
Spring Forecast
2010
Summer Forecast
2012 2014
Obama Initiatives: Impact
Infrastructure spending = ARRA
Infrastructure Bank
No/limited direct impact 2011-2012.
Modest impact 2013-2014
Proposals do not change near term outlook
Beyond the Crisis
Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban
$1 400 000 Asphalt $1 200 000 $1 000 000 $800 000 Oman Data US Average: 13.5% $600 000 $400 000 $200 000 2003 2007 2011 2015 Concrete 2019 Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)
Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban
$1 400 000 $1 200 000 Oman Data US Average: 15.3% Asphalt $1 000 000 $800 000 Oman Data US Average: 13.5% $600 000 $400 000 $200 000 2003 2007 2011 2015 Concrete 2019 Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)
Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban
Oman Data $1 400 000 $1 200 000 Oman Data US Average: 13.5% US Average: 15.3% Asphalt $1 000 000 15% Advantage $800 000 18% Disadvantage $600 000 $400 000 $200 000 2003 2007 2011 2015 Concrete 42% Advantage 2019 Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)
New Paving Realities: Impact
Cost Advantages will Increase
“Free Market, Lowest Cost Material” Doesn’t Always Win.
Escalators, LCCA Discount Rates, ADAB, MEPDG
State/Local Advocacy Focus
Upside Forecast Risks?
Cement Outlook
PCA’s Fall Board Meeting November 2011
Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009