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