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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
of 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
outlook 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
0
10
20
30
40
50
60
-2
-1
0
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
70Homeownership 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
1,9
18
1,7
50
1,6
52
1,4
81
49
5
57
7
94
4
0
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
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
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%
0
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.
Be
tte
r
W
ors
e
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%
0
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
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
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
0
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
No
v-0
8
Jan
-09
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-10
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-11
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-12
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-13
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-14
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-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
Mo
nth
s o
f B
ack
log
Nonresidential Construction Put-in-Place December 2006 through June 2016
Source: U.S. Census Bureau
0
100
200
300
400
500
600
700
800 Oct-08: $719.5B
Jan-11: $506.8B
June-16: $682.0B
SA
AR
($b
illi
on
s)
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
Bil
lio
ns
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
0
50
100
Jul-
00
No
v-0
0
Mar
-01
Jul-
01
No
v-0
1
Mar
-02
Jul-
02
No
v-0
2
Mar
-03
Jul-
03
No
v-0
3
Mar
-04
Jul-
04
No
v-0
4
Mar
-05
Jul-
05
No
v-0
5
Mar
-06
Jul-
06
No
v-0
6
Mar
-07
Jul-
07
No
v-0
7
Mar
-08
Jul-
08
No
v-0
8
Mar
-09
Jul-
09
No
v-0
9
Mar
-10
Jul-
10
No
v-10
Mar
-11
Jul-
11
No
v-11
Mar
-12
Jul-
12
No
v-12
Mar
-13
Jul-
13
No
v-13
Mar
-14
Jul-
14
No
v-14
Mar
-15
Jul-
15
No
v-15
Mar
-16
Jul-
16
Mo
nth
ly N
et
Ch
an
ge
(th
ou
san
ds)
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
No
v-0
1
Mar
-02
Jul-
02
No
v-0
2
Mar
-03
Jul-
03
No
v-0
3
Mar
-04
Jul-
04
No
v-0
4
Mar
-05
Jul-
05
No
v-0
5
Mar
-06
Jul-
06
No
v-0
6
Mar
-07
Jul-
07
No
v-0
7
Mar
-08
Jul-
08
No
v-0
8
Mar
-09
Jul-
09
No
v-0
9
Mar
-10
Jul-
10
No
v-10
Mar
-11
Jul-
11
No
v-11
Mar
-12
Jul-
12
No
v-12
Mar
-13
Jul-
13
No
v-13
Mar
-14
Jul-
14
No
v-14
Mar
-15
Jul-
15
No
v-15
Mar
-16
Jul-
16
12-m
on
th P
erc
en
t C
ha
ng
e
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