National & Regional Construction & Cement Outlook Florida Independent Concrete and Associated Products Association


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National & Regional Construction & Cement Outlook

  • Florida Independent Concrete and Associated Products Association

  • January 30, 2007

  • David E. Czechowski - Manager, Sr. Economist

  • Economic Research

  • Portland Cement Association


Key Points of Analysis



U.S. Economic Outlook



Key Near Term Issues

    • Oil Prices
      • Is the recent rundown sustainable?
      • International Demand/Disruptions/OPEC
    • Inflation
      • Will it subside enough to satisfy the Fed?
    • Interest Rates
      • Resumption in increases?
    • Housing Decline
      • Hard or Soft landing?
    • Job Creation


Federal Funds Rate







Consumer Under Pressure

    • Pay Increase Averages 3.5%.
    • Energy Prices Take a Large Bite.
      • Even in context of recent improvement
    • Interest Rates Rising in Context of Record Consumer Debt
    • Tapping Home Equity Bank Not as Viable As In the Past
    • Slowdown in Job Creation




Investment Spending



Real GDP Growth



Economic Outlook: Summary

  • Economic Growth Will Be Sustained

  • but Slowed

    • Consumers Maintain Spending at Slower Pace
    • Investment Spending Slow and Steady
    • Labor Market growth Slowing
  • Risks



U.S. Construction Markets



Changing Composition of Construction Spending

  • Growth Leader: Residential

    • Low Interest Rates
  • Public

    • State Tax Revenues Hurt by Anemic Economic Growth
  • Growth Laggard: Nonresidential

    • Weak Economy


Starts Activity More Than Low Rates…

    • The Cyclical Upside: 2001 - 2005
    • Low mortgage rates
    • Emergence of exotic mortgages
    • Easy credit conditions
    • Speculators add froth to the market
    • The Cyclical Downside: 2006 - 2009
    • Mortgage rates rising
      • Inventory Draw
    • Exotic mortgages losing favor
    • Defaults/delinquencies deteriorate credit quality and tighten credit conditions
    • Speculators reduced/disappear in lower appreciation rate environment




Sub-Prime Mortgage Resets



Inventory Draw Required



Affordability Squeeze







Nonresidential Construction

  • Underlying nonresidential drivers improving

  • Despite large percentage gains for 2006, most markets weak from historical perspective

  • Slower growth outlook depresses expected ROI and tempers recovery

  • High material costs reduce growth



Nonresidential Construction

  • 2004 2005 2006 2007 2008

  • Lodging 9% 4% 38% 11% 5%

  • Health Care -5% 2% 23% 5% 1%

  • Religious -12% -10% 1% 4% 6%

  • Educational -12% -6% 1% 2% 4%



Public Construction

  • 93% of public construction performed at state/local level

  • State/Local fiscal problems fading

  • Revenue growth improves with economy and job growth

  • Surpluses will re-emerge.

  • Pent-up demand released

  • Highway Bill adds strength







Public Construction

  • 2004 2005 2006 2007 2008

  • Buildings -6% 1% 2% 3% 4%

  • Highway -6% 3% 10% 6% 5%

  • Sewer -4% 2% 11% 4% 5%

  • Water -8% -2% 8% 4% 4%





Construction: Conclusions

  • Residential Easement Modest

  • Nonresidential Recovery

    • Turning Points Already Achieved
    • Still Weak from a Historical Perspective
    • Recovery within Sectors Differ
      • Retail/Hotel/Industrial Lead
      • Institutional/Office Lag
  • Public Waiting In Wings

    • State Fiscal Recovery
    • Pent-up Demand
    • SAFETEA




Cement Supply Update







Ratio of Cement Consumption to Construction



Cement Intensity

  • Favorable Relative Price Conditions

  • Cyclical Recovery

    • Larger, more cement intensive projects typically associated with economic recovery
  • Construction Mix

    • Outlook favors nonresidential and public construction with typically higher cement intensity
    • Code Changes/Green Building
    • Fiscal Healing


Competitive Materials Producer Price Indexes



Residential Exposure







Import Mix Shift









Mexican Support





Looking Forward

    • Tight market conditions dramatically reduced
    • Characterized by high operating rates
    • Inventories lean and well managed
    • Major expansion does not materialize until 2008.


Regional Perspective



Real GSP - Florida





Net Migration - Florida



Population Growth - Florida



Key Markets Exposure - Florida



Construction Permits - Florida



Single Family Permits - Florida



Multi-Family Permits - Florida



Contract Awards - Florida

  • 2003 2004 2005 2006

  • Buildings 17% 23% 21% -15%

  • Public 3% -3% 3% 30%

  • Commercial -1% 20% 4% -2%

  • Public Works 13% -10% 13% 10%

  • Highway 9% 8% 9% 4%

  • Water/Waste -22% 3% 16% 35%

  • Utilities 336% -78% 140% -50%

  • Other -6% 9% -8% 26%

  • Total 17% 18% 20% -12%



2003 2004 2005 2006Ytd

  • 2003 2004 2005 2006Ytd

  • Florida 8.59 9.70 11.23

  • %Change 9.7% 12.9% 15.8% 3.8%

  • Georgia 3.45 4.11 4.39

  • % Change 11.6% 19.2% 7.0% 3.9%

  • Alabama 1.60 1.64 1.74

  • %Change 8.1% 2.8% 5.7% 3.9%

  • South Carolina 1.50 1.74 1.78

  • %Change 9.6% 16.2% 2.1% 6.0%

  • U.S.

  • %Change 3.6% 6.8% 5.6% 0.9%



2003 2004 2005 2006Ytd

  • 2003 2004 2005 2006Ytd

  • Florida .766 .879 1.052

  • %Change 12.5% 14.6% 19.7% 2.0%

  • Georgia .321 .354 .357

  • % Change 9.8% 10.3% 0.8% 13.0%

  • Alabama .162 .172 .183

  • %Change 11.6% 6.1% 6.4% 8.7%

  • South Carolina .138 .147 .166

  • %Change 2.0% 6.6% 12.9% 11.5%

  • U.S.

  • %Change 7.0% 9.0% 6.1% 1.6%



Residential Cement Consumption Florida



Nonresidential Cement Consumption Florida



Public Cement Consumption Florida



Cement Outlook - Florida



Blended Cement Consumption Florida









Clinker Capacity – Southeast Region



Outlook Summary

    • Slowing Economic Growth
      • Rising Inflation, Interest Rates, Energy Prices, Slower Job Creation
    • Construction Market Flattening
      • Residential Weak
      • Slower Nonresidential & Public Recoveries
      • Higher Material Costs
      • Potential for Market Contraction in 2007
    • Cement Supply
      • Tight Market Conditions Dramatically Reduced
    • Add Extra Dose of Conservatism to Forward Plans
      • Florida’s sensitivity to the Housing cycle
      • Prepare Contingency Plans Incorporating Downside Risks.


National & Regional Construction & Cement Outlook

  • Florida Independent Concrete and Associated Products Association

  • January 30, 2007

  • David E. Czechowski - Manager, Sr. Economist

  • Economic Research

  • Portland Cement Association




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