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Cement & Construction Outlook
Precast Concrete Association of Virginia:
Fall Conference
September 25, 2008
Dave Zwicke, PCA Regional Economist
The Bottom Line
 Near Term Adversity
 Economic outlook remains dim.
 Adversity may continue longer than expected
 No recovery in housing until 2010
 Nonresidential decline slower to materialize…longer
recovery
 Potential of fiscal crisis at State level brewing
Construction Spending
Millions 1996$
Declines Continue
Through 2009.
Peak (2006)-to-Trough (2009) Decline:
-20.8% -- $-154 billion
Cement Consumption
(000) Metric Tons
Declines Continue
Through 2009.
Peak (2005)-to-Trough (2009) Decline:
30 MMT (Worst in History)
(On a Percentage Basis: Equal to 1980-82 Recession)
Construction Turning Points
1996=100
180
Residential
2006
160
Public
2009
140
120
100
80
Nonresidential
2008
60
1996
1998
2000
2002
2004
2006
2008
2010
2012
Outlook
 Double-digit declines in consumption with trough in 2009
 Large capacity increases in the pipeline magnify potential
market imbalances
 Imports record large, sustained declines
 Global demand conditions suggest high freight rates
 2008 bears most of the burden of market imbalance
 Inventory levels remain above historical averages

Past peak (2005) not realized until 2014
Economic Outlook
Economic Outlook: Five Factors
Sub-Prime
Mortgage
Payments
Financial
Crisis
Defaults
Write-Downs
Energy
Structural
Global
Realities
Credit Cards
Risk Aversion
Defaults
Tight Lending
Standards
Home Price
Declines
Reliance on
Home Equity
Gone
Tight Lending
Standards
Commercial,
Consumer,
homeowner
capital access
reduced
Global
Gasoline
Prices
Inflation
Energy Prices
Fertilizer/Biofuels
hit Ag Prices
Supply Side
Costs Ingrained
Heating Prices
Cost of
Business
Expected Inflation
Rises
Fed Tightens
Adds
Weakness to
Dollar
Short and Long
Term Interest
Rates Rise
Labor
Markets
Slower Economic
Growth
One Million Job
Loss in 2008
Housing Recovery
Delayed
Nonresidential
Declines
State Fiscal Crisis
Looming
Public Declines
Economic Adversity
2006
Sub-Prime
Energy
Financial
Crisis
Inflation
Labor
Markets
2007
2008
2009
2010
States in Recession
As of August, 2008
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
Recession
GA
At Risk
LA
TX
AK
FL
HI
Source: PCA/Economy.com
Growing
The Stage is Set…
Unemployment Rate -- % Change Year Ago
Source: BLS
= Recession
Employment declines …
Change in payroll jobs (000)
400
300
Period of
slowed hiring
200
100
0
-100
2007: + 1,096,000
YTD: -605,000
-200
Jan-05
Source: BLS
Jan-06
Jan-07
Jan-08
5 year
Average
Employment Declines are Regional
July Year-to-date
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
Loss
GA
Flat
LA
TX
AK
FL
HI
Source: BLS
Gain
County Job Growth
July Year-to-date
Job Growth
Job Loss
Source: BLS
Housing has been the catalyst…
Units (000)
Source: Census, S&P Case Shiller
Annual Growth
Consumers feel the crunch…
Annual Percent Change
Consumer Pessimism Growing
1985=100
Source: Conference Board
Monetary Policy
Federal Funds Rate
Recession
Risks Prompt
Fed Rate Cuts
Rising Inflation
Forces a Policy
Reversal
Long Recognition Lag By Fed…Forcing More Aggressive Policy Posture
Fiscal Stimulus
 Impacts 2nd half 2008 – 1st half of 2009
 $150 Billion Rebates
 Expected to reduce depth and duration of recession
 Fiscal policy may shorten economic downturn and accelerate
recovery…but it will NOT AVERT the recession
Energy Prices may offset fiscal stimulus…
Unleaded Gas, $ Per Gallon
Every 1 Cent Increase at the
Pump Takes $1 Billion Out
of Consumer’s Pockets on
an Annualized Basis
Since January 1st, Gasoline
Prices have increased $1.23
cents = Equating to a $120
Billion Annualized Draw on
Consumer Spending
Source: Department of Energy
Economic Growth
Percent Change, GDP Growth Rate
Tax Rebate
Bump
Hard to Sell Businessmen that Recession is “technically”
Avoided or Short Lived – Distress Continues well Into 2009.
Residential Construction
Cement Composition - Virginia
2005
2009
49.0%
39%
26.6%
41%
24.4%
20%
Public
Residential
Nonresidential
Mortgage Rates
Composite contract rate %
Fed
began
cutting
rates
Easy Credit Period
Foreclosures on the rise…
% of loans 90 days past due, SA
Source: Mortgage Bankers Association
Foreclosures are concentrated…
Below U.S.
Near U.S.
Above U.S.
Source: Equifax, Economy.com
% of households defaulting on their 1st mortgage, 08Q1
US: 1.8%
Home Prices will stabilize in late 2009
Existing Single Family Homes
High Inventories Will Depress Prices
Throughout 2008
National Housing Starts
000 Units
States Most at Risk to Residential Weakness
Residential Share of Total Cement Consumption
DELAWARE
FLORIDA
NORTH CAROLINA
GEORGIA
VIRGINIA
SOUTH CAROLINA
MARYLAND
NATIONAL
WEST VIRGINIA
Source: PCA
51.6%
47.0%
40.1%
38.8%
36.1%
33.0%
31.7%
30.2%
28.6%
Virginia Housing Market
Annual % Change -- Single Family Median Home
Source: National Association of Realtors
Single Family Housing
Annual Percent Change
Metro Home Prices
Percent Change Year Ago, June 2008 (3MA)
Source: Case Shiller
Residential Cement Consumption - Virginia
000 Metric Tons
Nonresidential Construction
Nonresidential Construction

Nonresidential Strength in 2006-2007
 Favorable ROI supported by active investment
environment
 Pent-up Commercial Demand
 Easy Credit Conditions

Nonresidential Softening in 2008-2009
 ROI Softens With Overall Economic Weakness
 Credit Conditions Tightening
 Risks and Uncertainty Grow
Nonresidential Construction
Annual Percent Change
Dodge Data Has Already Signaled a Decline
Financial Liquidity
Sub Prime
TED Spread – Difference between 3m T-Bill & LIBOR
Lenders Reporting Tighter Lending Standards:
Commercial
Percent Reporting Tighter Lending Standards
40
Medium to Large
Firms
Easy
Credit
Period
30
20
10
0
Small Firms
-10
-20
-30 Sub-Prime Has Spilled into
Commercial Credit Markets
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008 Q1
Business Confidence Has Been Shaken
Percent of Firms Reporting a Positive Business Outlook, NAM Survey
120
Business Leaders
Confidence Index has
declined 23% during
past year.
100
80
Bullish
Business
Attitudes
60
40
20
0
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008 Q1
Nonresidential Construction

2007 Momentum is Burning Off
 Measured by PIP, Nonresidential Outperformed PCA
Expectations.

But, Cement Intensities Declining
 Evidence that a retraction in nonresidential lies ahead

Fundamentals Deteriorate…Longer Recovery
 Larger declines of 2009
Nonresidential Cement Consumption - VA
000 Metric Tons
States Most at Risk to Credit Crisis
Nonresidential Share of Total Cement Consumption
WEST VIRGINIA
VIRGINIA
MARYLAND
NORTH CAROLINA
NATIONAL
DELAWARE
GEORGIA
FLORIDA
SOUTH CAROLINA
Source: PCA
24.7%
21.2%
20.8%
18.8%
18.5%
17.5%
15.0%
14.3%
11.4%
Office Vacancy Rates – U.S.
Percent Vacant
Source: CB Commercial
Office Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q2, 2008
Q2, 2007
Source: CBRE
Office Cement Consumption - Virginia
Metric Tons
Industrial Vacancy Rates – U.S.
Percent Vacant
20
18
Washington D.C.
16
14
12
10
8
6
U.S.
4
2
0
1984Q2 1987Q2 1990Q2 1993Q2 1996Q2 1999Q2 2002Q2 2005Q2 2008Q2
Source: CB Commercial
Industrial Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q2, 2008
Q2, 2007
Source: CBRE
Industrial Production – U.S.
Institute of Supply Management Index
Source: CB Commercial
Industrial Cement Consumption - Virginia
Metric Tons
Public Construction
Cement Composition - Virginia
2005
Public
2009
Residential
Nonresidential
State Fiscal Conditions
$49 Billion Shortfall in
2009
2009 Projected Budget Gaps
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
Deficit
GA
LA
TX
AK
FL
HI
Source: PCA/Center on Budget and Policies Priorities
Surplus
States Most at Risk of Budget Shortfalls
Public Cement Consumption Share of Total
SOUTH CAROLINA
NATIONAL
MARYLAND
WEST VIRGINIA
GEORGIA
VIRGINIA
NORTH CAROLINA
FLORIDA
DELAWARE
Source: PCA
52.8%
51.2%
47.8%
46.4%
46.0%
42.9%
41.1%
38.6%
30.0%
Other Public Cement Consumption - VA
Metric Tons
2008: -14.2%
2009: -8.2%
2010: +4.4%
2011: +7.8%
Other Public Cement Consumption - VA
Metric Tons
2008: -14.2%
2009: -8.2%
2010: +4.4%
2011: +7.8%
Market Dynamics
Total Cement Consumption - Virginia
000 Metric Tons
2008: -12.0%
2009: -9.3%
2010: +2.8%
2011: +9.3%
Virginia Metro Markets
User Group
Residential
Nonresidential Public
DC Metro
33%
21%
46%
Norfolk
34%
16%
50%
Richmond
42%
14%
44%
Source: PCA Market Research
Direct Shipments Survey - Virginia
User Group
2005
2006
2007
Ready-Mix
64%
64%
74%
Street & Highways Contractors
6%
6%
3%
Building Materials Dealers
1%
5%
4%
Pre-Cast
12%
14%
14%
All Other
9%
6%
3%
Brick & Block
7%
4%
1%
Concrete Pipe
1.5%
1.4%
1.3%
Source: PCA Market Research
Take a Step Back…
Long Term Cement Consumption
000 Metric Tons
Long Term Cement Conclusions

Growth Outlook Favorable



Discount current short-term business cycles
Population and economic growth support
consumption
“Green” advantages of concrete will add to
demand
Cement & Construction Outlook
Precast Concrete Association of Virginia:
Fall Conference
September 25, 2008
Dave Zwicke, PCA Regional Economist