2016 Midyear Collaborative Construction Economic Forecast August - - PowerPoint PPT Presentation

2016 Midyear Collaborative Construction Economic Forecast

August 15, 2016 2:00 – 3:00 p.m., EDT

2016 Midyear Collaborative Construction Economic Forecast

Today’s moderator:

Jeff Leieritz Senior Media Relations Manager Associated Builders and Contractors

Moving Ahead: Issues Affecting the Residential and Nonresidential Construction Outlook

Kermit Baker, Hon. AIA Chief Economist The American Institute

• f Architects

August 15, 2016

Topics

• Residential issues: demographic shifts and

homeownership.

• Status and trends in commercial and institutional

building construction, and the Architecture Billings Index.

• 2016/2017 outlook for nonresidential building

spending, and comparison of current forecasts to

• utlook as of beginning of the year.

4

Construction Recovery Continues to Plod Along, Particularly for Single-Family Residential

$434 $53 $244 $256 $105 $15 $128 $205 $229 $51 $224 $230 $0 $100 $200 $300 $400 $500 $600 S-F construction MF construction Comm/Ind bldg. const

• Instit. bldg const.

Peak Trough Current

5

Note: Current as of Jun., 2016; Source: U.S. Census Bureau Construction Spending Put-in-Place

Spending at various points in the past construction cycle ($Billions)

5

The Millennial Generation is Moving Into Age Ranges with Higher Headship Rates

10 20 30 40 50 60

• 2
• 1

1 2 3 4 Under 25 25 to 29 30 to 34 35 to 39 40 to 44

Population Growth (Millions)

2005-2015 2015-2025 Headship Rate Age Group

Headship Rate (Percent)

6

The National Homeownership Rate Has Fallen to Its Lowest Level in a Half Century

62 63 64 65 66 67 68 69 70 Homeownership Rate (Percent)

7

Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys.

Nonresidential Building Trends and Outlook

8

First Half 2016 Results Show Nonresidential Building Spending Starting to See Slower Growth

2016 2015 % change Total Nonres. Bldg. Construction $219.1 $206.0 6.3% Commercial/Industrial 113.2 103.4 9.5%

Lodging 12.6 10.0 26.9% Office 30.4 25.3 20.1% Commercial (retail and other) 34.2 31.2 9.6% Manufacturing 36.0 36.9 -2.6%

Institutional 105.8 102.6 3.2%

Health care 19.6 19.2 2.2% Educational 41.0 38.6 6.2% Religious 1.8 1.6 10.5% Public safety 3.9 4.1 -6.4% Amusement and recreation 10.2 9.2 10.2% Transportation 20.3 20.8 -2.1% Communication 9.0 9.0 0.5%

Source: U.S. Census Bureau, Value of Construction Put in Place

Billions of $, NSA, January - June totals

9

40 45 50 55 60

Though Remaining Volatile, Pace of Growth in Architecture Billings Seems to be Slowing

Source: AIA Architecture Billings Index

diffusion index: 50 = no change from previous month, seasonally adjusted

10

All Major Construction Sectors Seeing Healthy ABI Scores

Source: AIA Architecture Billings Index Billings scores since 2012; index: 50 = no change from previous month

45 50 55 60

Jan '12 Apr Jul Oct Jan '13 Apr Jul Oct Jan '14 Apr Jul Oct Jan '15 Apr Jul Oct Jan '16 Apr

Residential Commercial/ Industrial Institutional

11

Commercial Gains Projected to Moderate as Growth Swings Over to Institutional Categories

Source: AIA Consensus Construction Forecast Panel, June, 2016

billions $ of construction spending on nonresidential buildings

$386 $145 $56 $67 $158 $40 $85 5.8% 11.7% 14.7% 7.4% 4.5% 2.3% 6.5% 5.6% 6.5% 7.5% 5.2% 5.8% 5.0% 6.3%

0% 5% 10% 15% 20% $0 $100 $200 $300 $400 Total Nonres.

• Tot. Comm.

Office Retail

• Tot. Instit.

Health Education

2015 spending level 2016 % change 2017 % change

annual % change 12

Economic Forecast And Outlook

August 15, 2016

Robert Dietz, Ph.D. NAHB Chief Economist

US Payroll Employment

Total jobs slightly below trend

• 0.10

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 125.0 129.0 133.0 137.0 141.0 145.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

• 7%

+1%

• 2%

138.4 93% 104%

Millions

• .2%

Household Formations

Average yearly growth of household formations has doubled

1,918 1,750 1,652 1,481 495 577 944

500 1,000 1,500 2,000 2,500 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Thousands

Avg: 1.4 million (12% renters) Avg: 0.5 million (130% renters) Avg: 1.0 million (109% renters)

537 148 235 3,010 1,610 1,550

500 1,000 1,500 2,000 2,500 3,000 3,500 100 200 300 400 500 600 700 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 New Home Sales: Single-Family Houses for Sale Number of single-family homes available for sale Thousands, NSA Thousands, NSA

Low Housing Inventory

Existing home inventory flat

Constraints on Building Growth The Three L’s

Labor

Unfilled construction jobs rising

• 0.10

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Job openings rate - Construction 12-month moving average

0% 10% 20% 30% 40% 50% 60% 70% 300 600 900 1,200 1,500 1,800 2,100 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Starts (Thousands) Low Supply

Lots

Housing Starts (Area) and Low/Very Low Lot Supply (bars)

Median Lot Value and Size

Lot size declining --- lot value increasing

8,589 $[VALUE]

$15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 8,200 8,400 8,600 8,800 9,000 9,200 9,400 9,600 9,800 1999 2001 2003 2005 2007 2009 2011 2013 2015 Square Feet

Median Lot Size (For Sale: Single-Family Detached) Median Lot Value (Single-Family Starts)

Source: 2015 Survey of Construction (SOC), NAHB Economics Estimates.

Lending - AD&C Access

Source: Senior Loan Officer Opinion Survey (SLOOS), The Federal Reserve Board.

Better Worse

Forecasts

Residential Remodeling

60 85 110 135 160 185 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Billions 2009 USD, SAAR

Adjusted Actual

Year Percent Change 2016 2.3% 2017 0.5% 2018 1.3%

50 100 150 200 250 300 350 400 450 500 550 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Thousands of units, SAAR 76% fall 2018Q4: 110% of “Normal” Avg=344,000 1995-2003 331,000 “Normal” 2013 308,000 2014 355,000 15% 2015 395,000 12% 2016 386,000

• 2%

2017 392,000 2% 2018 372,000

• 5%

Multifamily Housing Starts

Leveling off

Trough to Current: 4th Q 09 = 82,000 2nd Q 16 = 397,000 +340%

2016Q2: 120% of “Normal”

8 14 59

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 10 20 30 40 50 60 70 80 05 06 07 08 09 10 11 12 13 14 15 16 Index Thousands, SAAR

NAHB/Wells Fargo Housing Market Index

The song remains the same Single-Family Starts HMI

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Thousands of units, SAAR 80% fall

Single-Family Starts

Growing pains

Trough to Current: Mar 09 = 353,000 Jun 16 = 778,000 +120%

2016Q2: 57% of “Normal” 2018Q4: 77% of “Normal” 2000-2003 1,343,000 “Normal” 2013 620,000 2014 647,000 4% 2015 713,000 10% 2016 793,000 11% 2017 888,000 12% 2018 992,000 12%

Home Size Market Shift

2016 Midyear Collaborative Construction Economic Forecast Anirban Basu Chief Economist Associated Builders and Contractors

Architecture Billings Index

January 2008 through June 2016

Source: The American Institute of Architects 30.0 35.0 40.0 45.0 50.0 55.0 60.0

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16

June 2016: 52.6

ABC’s National Construction Backlog Indicator (CBI) Average

2009Q1 through 2016Q1

Source: ABC

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 6.5 6.0 5.9 5.8 6.1 7.2 7.0 7.1 7.3 8.1 8.1 7.8 7.4 7.7 8.0 8.0 7.9 8.2 8.2 8.3 8.1 8.5 8.8 8.7 8.4 8.5 8.5 8.7 8.6 Months of Backlog

Nonresidential Construction Put-in-Place

December 2006 through June 2016

Source: U.S. Census Bureau

100 200 300 400 500 600 700 800 Oct-08: $719.5B Jan-11: $506.8B June-16: $682.0B SAAR ($billions) Public Private

Source: U.S. Census Bureau

National Nonresidential Construction Spending by Subsector

June 2015 v. June 2016

• 14.5%
• 14.0%
• 10.4%
• 8.4%
• 6.0%
• 5.9%
• 4.8%
• 4.3%
• 3.3%
• 0.7%

3.0% 3.7% 7.5% 8.3% 16.1% 16.2%

• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% Sewage and waste disposal Water supply Manufacturing Public safety Communication Highway and street Health care Educational Transportation Amusement and recreation Power Religious Commercial Conservation and development Lodging Office 12-month % Change Total Nonresidential Construction YOY:

• $7.55B; -1.1%

Offshore Investment Sales Volumes Reach New Heights in 2015

$9.2 $19.1 $22.3 $33.4 $40.7 $8.3 $3.5 $13.0 $17.7 $23.8 $29.2 $28.3 $71.7 $0 $10 $20 $30 $40 $50 $60 $70 $80 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Billions of $US

Foreign Investment Increases 153.4 Percent in 2015 to $71.7b

Source: Jones Lang LaSalle; Real Capital Analytics

Note: Among transactions larger than $5.0 million

Source: U.S. Bureau of Labor Statistics

National Construction Employment

Monthly Net Change July 2000 through July 2016

• 200
• 150
• 100
• 50

50 100 Jul-00 Nov-00 Mar-01 Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Monthly Net Change (thousands)

July 2016: +14K

Source: U.S. Bureau of Labor Statistics

*Construction, Mining, and Logging are included in one industry.

State-by-state Growth in Construction Jobs

June 2015 v. June 2016

STATE Year-over- year Ch. (‘000) STATE Year-over- year Ch. (‘000) STATE Year-over- year Ch. (‘000)

CALIFORNIA 32.3 OREGON 6.1 DELAWARE* 0.7 FLORIDA 25.5 NEVADA 6.0 NEW MEXICO 0.5 COLORADO 13.2 UTAH 5.6 CONNECTICUT 0.4 WASHINGTON 12.5 HAWAII* 5.5 VERMONT 0.4 GEORGIA 12.2 ILLINOIS 3.8 NEBRASKA* 0.2 IOWA 12.2 TENNESSEE* 3.8 PENNSYLVANIA

• 0.1

MASSACHUSETTS 11.2 MINNESOTA 3.5 RHODE ISLAND

• 0.1

ARIZONA 11.0 MISSOURI 3.0 DISTRICT OF COLUMBIA*

• 0.1

OHIO 9.9 LOUISIANA 2.9 ARKANSAS

• 0.3

NEW YORK 8.6 MICHIGAN 2.4 ALASKA

• 0.6

MARYLAND* 8.1 IDAHO 2.3 MONTANA

• 1.1

NORTH CAROLINA 7.3 TEXAS 2.3 WYOMING

• 1.5

WISCONSIN 7.1 VIRGINIA 1.4 MAINE

• 1.7

OKLAHOMA 6.9 SOUTH DAKOTA* 1.2 WEST VIRGINIA

• 1.8

NEW JERSEY 6.8 MISSISSIPPI 1.1 ALABAMA

• 2.1

INDIANA 6.7 NEW HAMPSHIRE 1.1 KANSAS

• 3.7

SOUTH CAROLINA 6.7 KENTUCKY 0.8 NORTH DAKOTA

• 4.3

Source: U.S. Bureau of Labor Statistics

Inputs to Construction PPI

July 2001 – July 2016

• 10%
• 5%

0% 5% 10% 15% Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16

12-month Percent Change

July 2015 v. July 2016:

• 2.3%

Source: U.S. Bureau of Labor Statistics

Construction Materials PPI

12-month % Change as of July 2016

• 20%
• 15%
• 10%
• 5%

0% 5% 10%

Crude Petroleum Crude Energy Materials Nonferrous Wire and Cable Iron and Steel Natural Gas Steel Mill Products Fabricated Structural Metal Products Plumbing Fixtures and Fittings Prepared Asphalt and Tar Roofing & Siding Products Softwood Lumber Concrete Products

• 14.4%
• 8.0%
• 6.2%
• 2.1%
• 1.0%
• 0.9%
• 0.1%

0.3% 0.6% 3.0% 3.7%

Things about which to be Nervous

• Regulators;
• Negative interest rates and other forms of monetary

stimulus;

• Stretched asset values in the U.S., perhaps leading to

excess investment in certain categories and creating negative wealth effect scenarios;

• Housing activity may be peaking & auto sales may be

peaking;

• Consumer delinquencies;
• The usual black swan candidates; &
• Uncertainty surrounding the 2016 election cycle.

Nonresidential Spending Forecast

Billions of $ 2015 Actual 2016 2017

Commercial

$144.5 $156.9 $161.9 8.5% 3.2%

Industrial

$83.4 $80.2 $85.0

• 3.9%

6.0%

Institutional

$157.9 $160.2 $164.2 1.5% 2.5%

Nonresidential Building

$385.8 $397.2 $411.1 3.0% 3.5%

2016 Midyear Collaborative Construction Economic Forecast

Questions and Answers

Kermit Baker Chief Economist, American Institute of Architects Robert Dietz Chief Economist, National Association of Home Builders Anirban Basu Chief Economist, Associated Builders and Contractors