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Connect With Concrete
Construction Outlook: 2008
Ed Sullivan, Chief Economist PCA
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Introduction: Overview The economy is in recession…and it may not be mild.
December
Fiscal & Policy actions will not avert a recession. Timing lags
Fiscal Policy not have as strong an impact on GDP as expected.
Debt, Energy, Adverse Momentum.
Lending aversion toward risk is spreading Mortgage here Consumer and Commercial impacts begins to
emerge.
Job losses compound economic adversities.
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Key Questions
How deep will retrenchment
go ?
How long will it last ?
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Construction OutlookBillion 1996 $
450
500
550
600
650
700
750
800
1996 1998 2000 2002 2004 2006 2008 2010
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Economic Outlook
Slower Growth Ahead
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Introduction 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 in consumer spending to
housing wealth.
Payback is tough – maybe more than consensus of economists believe.
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Sub-Prime Mortgage Resets
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Total Loans Scheduled for Reset
Period of Emerging Period of Emerging TroubleTrouble
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Lenders Reporting Tighter Lending Standards: Mortgages
-20
-10
0
10
20
30
40
50
60
2000Q1 2002Q1 2004Q1 2006Q1 2008 Q1
Easy Credit Period
Tighter Credit Will Undermine Sales Recovery
Sub-Prime Lending Has disappeared.
Percent Reporting Tighter Lending Standards
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Lenders Reporting Tighter Lending Standards: Consumer
-15
-10
-5
0
5
10
15
20
25
30
35
2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008 Q1
Easy Credit Period
Credit CardsSub-Prime Has Spilled into Consumer Credit Markets
Percent Reporting Tighter Lending Standards
Other Consumer Credit
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Lenders Reporting Tighter Lending Standards: Commercial
-30
-20
-10
0
10
20
30
40
2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008 Q1
Easy Credit Period
Small Firms
Sub-Prime Has Spilled into Commercial Credit Markets
Percent Reporting Tighter Lending Standards
Medium to Large Firms
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Sub-Prime is not just housing… Recession: May not be short or
shallow.
Housing
Consumer
Commercial
Public
2007
2009
2008
2006
Energy
Foreign Capital Inflows
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Economic Policy Actions
Slower Growth Ahead
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Monetary Policy Timing LagsPercent Change, GDP Growth Rate, Inflation
-0.20%
-0.10%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0 2 4 6 8 10 12 14 16 18 20 22 24
50 Basis Point Federal Funds Peak Economic Stimulus 8-9 Months After Cut
Change in Real GDP Growth
Rate
Change in CPIU Inflation Rate
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Fiscal Policy Impacts Per MonthPercent Change, GDP Growth Rate
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
May July September November January March
Tax Rebate Planned Impact
Tax Rebate Impact With PCA Debt Reduction
Assessment
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Economic Outlook: Policy Stimulus
Potential of significant policy impact does not arrive until second half 2008.
Ingredients of current economic malaise boil and fester undermining conditions until policy impacts arrive.
Fiscal Stimulus: $170 Billion …expected to encourage new consumer spending.
Pay debt – past consumption.
Monetary Policy: The issue is “Lenders risk aversion”….not interest rates & liquidity.
Loan losses, bank closures, sour economic news.
Gasoline …over $4 …partially offsets policy stimulus.
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Economic Growth OutlookPercent Change, GDP Growth Rate
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2005.1 2006.1 2007.1 2008.1 2009.1 2010.1
Tax Rebate Bump
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Residential Outlook
Recovery Delayed: 2009 3Q
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Home Inventory
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2004 2005 2006 2007 2008 2009
Existing
New
Thousands of Homes for Sale, December
NewExisting
Existing
Existing
New
New
Existing Homes Account for 87% of Total Home
Inventory
Existing
Existing
New
New
Connect With ConcreteSingle Family Price Trend: Existing Homes Compared to Year Ago Levels
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
2004 2005 2006 2007 2008 2009
0
2
4
6
8
10
12
Percent Change, Year Ago (%)
High Inventories Will Depress Prices Throughout 2008.
Projected
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Job Growth ProjectionsThousands of Net New Jobs Created Per Month
-200.0
-100.0
0.0
100.0
200.0
300.0
400.0
2004 2005 2006 2007 2008 2009
History Forecast
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Excess Home Inventory
-1000
-500
0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008 2009
Inventory In Excess of Five Months Desired Supply
More Than 2 Million Excess Inventories
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Nonresidential Outlook
Declines in 2008
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Business Confidence Has Been Shaken
0
20
40
60
80
100
120
2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008 Q1
Bullish Business Attitudes
Percent of Firms Reporting a Positive Business Outlook, NAM Survey
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Public Outlook
Slower Growth in 2008, Problems Looming
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District of Columbia
No Shortfall 2010 Shortfall2009 Shortfall
States With Projected Budget Shortfalls
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Conclusion
Correction is Temporary
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Take a Step Back
Cyclical correction is
temporary.
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Construction Outlook: 2008
Ed Sullivan, Chief Economist PCA