Transcript Welcome to Carter - Portland Cement Association

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Ed Sullivan, Chief Economist PCA
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Introduction: Overview
 Economic fundamentals are weak.
 Private Sector no longer drives demand
 Residential & Nonresidential recoveries are not
expected to materialize anytime soon.
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Bank Charge-Offs versus Unemployment Rate
- % Loans Charged-Off, % Unemployed
Stress Tests
Based on 8.4%
Unemployment
Rate
10
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Job Recovery: Past Recessions
- Change, Thousands of Jobs
1,200
1980-1982 Recession
1,000
800
600
400
200
1990-1991 Re
0
-200
-400
2000-2001 Recession
Current Recession
-600
-800
-12
-6
0
6
12
18
24
30
36
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Economic Growth Outlook
Percent Change, GDP Growth Rate
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Introduction: Overview
 Economic fundamentals are weak.
 Private Sector no longer drives demand
 Residential & Nonresidential recoveries are not
expected to materialize anytime soon.
 Outlook shaped by policy actions.
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“Stimulus Timeline
Policy Tool
Objective
2009
Job Saving
Phase I
Phase II
Phase III
Tax Cuts,
Entitlement
Spending,
State Aid
Shovel
Ready
Projects
Long Term
Investments
Stabilize
Economy,
halt adverse
momentum
Job
Creation
Job
Creation,
Address
Structural
Economic
Issues
2010
2011
Job Creating
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Stimulus: Job Creation Estimates
Million Jobs
Obama
Economists
PCA
2009-2010
2009-2010
Unemployment:
7.0%
Unemployment:
8.8%
Job Estimates have large impacts on
Cement/Concrete recovery assessments.
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Stimulus Overview
 Obama’s $789 billion plan may not be enough.
 Obama economists expect an additional 2.8 million jobs lost.
And plan aimed at creating /saving 3.7 million jobs.
 PCA estimates that 8.5 million jobs may need to be
created/saved.

Stimulus plan required = $1.5 trillion (conservative)
 And….Obama Economists implied it…..
 Taxpayer pushback, politics prevented full initiation for now…
 Don’t be surprised if a second stimulus plan materializes.
 New Highway Bill may fit requirement ($400 Billion = PCA)
 Delayed passage dovetails with 10% unemployment and may fly under
radar and taxpayer pushback
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Residential
Single Family Recovery 2011
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Single Family Home Sales (New)
- Thousands of Homes
Weak Labor Markets, Tight Lending
Standards, Competition From Distressed
Properties Prevent A Meaningful New
Home Sales Recovery From Materializing
Until Mid 2010
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Nonresidential
The Crash of 2009
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Real Nonresidential Construction
25%
(Y-o-Y % Change)
20%
15%
10%
5%
No Recovery Until Late 2011
0%
-5%
Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09
Nonresidential Buildings
Source: PCA
12MMA
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Streets & Highway
Stimulus Good, Reauthorization May be Even Better
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Discretionary State & Local Highway/Street Spending
- Millions of Real $ (estimated)
Job Losses Generate Deficits –Pushing
Discretionary Spending Down
State Discretionary Highway Spending Will Act as a Powerful Drag on Total
Highway Construction Activity in 2009-2010
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“Shovel Ready” Timeline
Jan
Feb
March April
May
June
July
August
House Bill
Obama
Inaugurated
Senate
Passes &
Bill Signed
Federal
Paperwork
State
Paperwork
Bid Letting
Bid Review
Contractor
Paperwork
Construction
Begins
Job Creation May
Come Later Than
Many Expect
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Shovel Ready: Late in Coming, Low Cement Intensities
 Projects that can be undertaken within 120 days.
 Paint a bridge Versus new ramp for a bridge.
 Resurface a road Versus Expand a road
 Low cement intensities per $ spent.

These programs will create jobs and cement volume
increases...but not as many as “Hard” infrastructure
investment.
 Panic to spend Versus Patience and Payoff
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Streets & Highways
 Economic distress will lead to a drag in discretionary state highway
spending initiatives
 Stimulus spending will help some in 2009…more in 2010..
 Low cement intensities through first half of 2010….resurfacings and
system preservation dominate…
 Backlog of projects related to systems preservation reduced…..
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2004-2009
SAFETEA-LU: Composition of Work
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2011-12
New Highway Bill: Composition of Work
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Beyond the Crisis
Stimulus Payback in context of Global Recovery
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Introduction: Overview
 Cyclical correction is temporary.
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Point Six
 Stimulus spending must be paid
for…resulting in higher interest rates, higher
taxes and potentially higher inflation….
 …and…American consumer..the engine of
US economic growth may show significantly
different spending patterns…
 …combining for the potential of slower
longer term economic growth (50 basis
points).
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Single Family Housing– United States
000 Starts
2,000
1,800
Pent-Up Demand
1,600
1,400
1,200
1,000
800
600
Interest Rates low, Decline in Home Price, Job
Recovery Translate into Improved Affordability
400
200
Excess Inventories Worked Off
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
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Point Seven
 Once recovery is in place….
 And despite payback costs for stimulus…
 Concrete construction could record large
and sustained gains in growth.
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Ed Sullivan, Chief Economist PCA