Transcript Welcome to Carter - Portland Cement Association

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Cement Outlook: 2009
Ed Sullivan, Chief Economist PCA
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Introduction: Overview
 Economic fundamentals are deteriorating
quickly.
 Outlook shaped by policy actions.
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Introduction: Stimulus
Underlying Economic Fundamentals
And…they are deteriorating at an alarming rate!
Stimulus Size
Stimulus
Details
Stimulus
Effectiveness
Metals Volume Estimates
Stimulus
Timing
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Underlying Economic Fundamentals
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States in Recession
July
December
October
January
May
2007
2008
WA
NH
MT
ME
VT
ND
OR
MN
ID
SD
RI
WY
MI
CT
IA
PA
NE
NV
MA
NY
WI
UT
IL
OH
IN
CO
DE
MD
WV
CA
KS
NJ
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
GA
LA
TX
AK
FL
HI
Recession
At Risk
Growing
Source: PCA/BLS
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Underlying Fundamentals
 Lacking stimulus, the economy enters a deep and long contraction
 GDP declines 3.5% in 2009 and another 1.5% in 2010
 An additional 6 million more jobs lost and unemployment reaches
11% during 2009-2010
 State deficits reach $79 billion in 2009, $102 billion in 2010.
 Conservative estimates
 Cement consumption declines 19% in 2009 followed by another
9% in 2010.
 May serve as an indication for steel shipments
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Economic Outlook: Five Factors
Sub-Prime
Mortgage
Payments
Financial
Crisis
Energy/
Inflation
Defaults
Structural Global
Realities
Write-Downs
Credit Cards
Gasoline Prices
Risk Aversion
Defaults
Tight Lending
Standards
Home Price
Declines
Reliance on
Home Equity
Gone
Heating Prices
Tight Lending
Standards
Fertilizer/Biofuels
hit Ag Prices
Commercial,
Consumer,
homeowner
capital access
reduced
Supply Side
Costs Ingrained
Cost of Business
Global
Adds Weakness
to Dollar
Labor
Markets
Slower Economic
Growth
State
Deficits
Slower Job
Revenues Slow
One Million Job
Loss in 2008
Housing Recovery
Delayed
Nonresidential
Declines
State Fiscal Crisis
Looming
Public Declines
Entitlement
Programs Continue
Deficits
Drag on Recovery
Offsets Possible
Federal Stimulus
Package
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Economic Adversity
2006
Sub-Prime
Energy
Financial
Crisis
Inflation
Labor
Markets
State
Deficits
2007
2008
2009
2010
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Net Job Creation (Loss)
- Annual Change, Thousand Net Jobs
4,000
3,000
2,000
1,000
0
1999
2001
2003
2005
2007
2009
-1,000
-2,000
-3,000
-4,000
Job Loss 2009 = 4.1 Million
-5,000
Job Loss 2010 = 1.8 Million
Unemployment Peaks at +11% Early-2010
2011
2013
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Consumers feel the crunch…
Annual Percent Change
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No Stimulus Job Loss Estimates
Million Jobs
2008
2009-2010
2009-2010
Obama
Economists
PCA
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Point One
Regardless of Stimulus’ Effectiveness, Laid Atop Weaker Fundamentals
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Point One
 Regardless of Stimulus’ Effectiveness…it will
be laid atop dramatically weaker
fundamentals……
 …Impacting volume estimates for 20092010
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Stimulus Size: Expectations for Growth
Stimulus Not a Silver Bullet…and..the untold Story on Expectations
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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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Change in
GDP From No
Stimulus
Scenario
Stimulus: GDP Impacts
Obama
Economists
PCA
2009-2010
2009-2010
GDP 4th Q 2010:
$12.2 Trillion
GDP 4th Q 2010:
$11.6 Trillion
Note: Stimulus in PCA Outlook Overlaid upon
weaker Fundamentals.
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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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Economic Growth Outlook
Percent Change, GDP Growth Rate
Recession
Scenario: With
Stimulus
Recession Scenario:
No Stimulus
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Point Two
Expectations Vs Reality: More Stimulus May be Needed
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Point Two
 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 = $1.2 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.
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Phase One: Tax Cuts, Entitlements, State Aid
Expectations Vs Reality: More Stimulus May be Needed
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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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Phase One: Impacts on Construction
 Tax cuts, Entitlement spending and State
Aid are not going to boost construction
from 2008 levels…..They are going to
improve conditions that would have
transpired without stimulus during 20092010.
 Job saving…Metals Volume Saving
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Phase One: Tax Impacts on Construction
 Tax cuts improve extremely adverse economic conditions.
 Accent on Job Savings
 Lags suggest roughly half of tax cuts impacts materialize in
second half of 2009 and first half of 2010.
 Impacts dissipate quickly.
 Impacts on construction activity are modest.
 Cement SAARs increase roughly 1% late 2009/early 2010,
compared to a no stimulus scenario .
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Phase One: State Aid Impacts on Construction
 State Aid reduced fiscal hardship facing states.
 94% of all public construction performed by state and local
governments.
 Current state fiscal crisis estimated to be 5 times worse that
2002-2003 “crisis” – measured by potential deficits.
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2009 Fiscal Deficits
Deficit % Share of Total Expenditures
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
GA
LA
TX
FL
HI
No Deficit
Source: PCA/Census
0-10%
11%-15%
16% +
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Phase One: State Aid Impacts on Construction
 Fiscal hardship facing states: No stimulus scenario
suggests:
 500,000 state /local employee layoffs in 2009,
650,000 layoffs in 2010
 Tax increases
 Deep cuts in spending
 Priorities to fund entitlements: Medicaid
 Construction spending faces dramatic cuts.
 50% of cement consumption – hard infrastructure.
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Phase One: State Aid Impacts on Construction
 State reaction to Federal Funds
 Reduce or forego layoffs
 Fund entitlement programs
 Reduce or forego tax increases

These state reactions reduce potential money directed to
construction.
 Nevertheless, state aid is largest contributor to
construction activity during “Phase I”
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Phase Two: Shovel Ready
Expectations Vs Reality: More Stimulus May be Needed
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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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“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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Phase Two: Ready to Go
 Projects that can be undertaken within 180 days.
 Paint a bridge Versus new ramp for a bridge.
 Resurface a road Versus Expand a road
 Low cement intensities per $ spent.
 Presumably, low steel intensities

These programs will create jobs and cement (steel)
volume increases...but not as many as “Hard”
infrastructure investment.
 Panic to spend Versus Patience and Payoff
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Point Three
Significant Relief for Construction does not Materialize in 2009
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Point Three
 Due to administration lags.. potential
construction impacts begin to materialize
late third quarter/early fourth quarter…
 …and…”shovel ready” projects carry very low
cement (steel) intensities….
 …leaving 2009 volume impacts muted.
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Phase Three: “Hard” Infrastructure
Expectations Vs Reality: More Stimulus May be Needed
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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: Infrastructure Job Creation Estimates
Percent Job Premium
Compared to A
Resurfacing
Reconstruction,
Capacity
New Bridge
Major Widening
New Route
Bridge
Replacement
Concrete Intensive Projects Create More Jobs Than Resurfacing
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Economic Growth Outlook
Percent Change, GDP Growth Rate
Recession
Scenario: With
Stimulus
Recession Scenario:
No Stimulus
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Adding it Up
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Spending Details
Millions of $
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Stimulus Scenario Impacts
000 Metric Tons, Cement
2009
2010
2011
Fall Forecast
Annual Change
85,485
-11.6%
83,327
-2.5%
91,507
9.8%
No Stimulus
Annual Change
76,950
-19.0%
70,025
-9.0%
76,327
9.0%
Spending Impact
Tax Impact
State Aid Impact
Indirect Impact
1,983
750
2,271
500
10,411
985
5,576
3,394
4,131
0
2,509
13,281
Total Added Demand
5,504
20,366
19,922
Total Market
Annual Change
82,454
-13.2%
90,391
9.6%
96,248
6.5%
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Percent Increase In Consumption
Compared to No Stimulus
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Portland Cement Consumption
Thousand Metric Tons
140,450
120,450
100,450
80,450
60,450
40,450
20,450
450
1998
2000
2002
2004
2006
2008
2010
2012
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Point Four
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Point Four
 Stimulus gains are substantial beginning in
second half of 2010...
 …But even with these gains…past cyclical
peaks are not expected to materialize until
2015.
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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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The Economic Recovery:
2008
Sub-Prime Drag Abates
Bank Lending Aversion
Improves
Stimulus Gains
Employment Traction
Lending Risk Declines:
Credit Easing
Energy Stimulus
State Deficits
Improve
Pent-Up Demand
Released
2009
2010
2011
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Single Family Housing– United States
000 Starts
Pent-Up Demand
Interest Rates low, Decline in Home Price, Job
Recovery Translate into Improved Affordability
Excess Inventories Worked Off
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Nonresidential Long Term Trend
Million Real $, 1996
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Point Five
Spending Payback: Softer Economic Growth
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Point Five
 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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Portland Cement Consumption
Thousand Metric Tons
140,450
120,450
100,450
80,450
60,450
40,450
20,450
450
1998
2000
2002
2004
2006
2008
2010
2012
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Cement Outlook: 2009
Ed Sullivan, Chief Economist PCA