Transcript Slide 1
CONSTRUCTION COST TRENDS Central Texas Conference – November 12, 2010 Construction Cost Trends 1. Where have we been? National Economy Central Texas Economy 2. 3. Current Conditions What Lies Ahead Where have we been? National Slowdown began in 2007 Recession Began in 2008 Deeper and longer duration than any recession in the past 40 years Recession “technically” ended in early 2010 -5 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 National Economy 3 2 1 Above Normal Growth Rate 0 -1 Recession -2 -3 -4 Chicago Federal Reserve – National Activity Index Below Normal Growth Rate Economic Factors High Unemployment Stimulus Package High Federal, State and Personal Debt Unstable Financial Markets Tightened Lending Foreclosures Higher Taxes? Uncertainty of Federal Government Policies Reduced Consumer Spending Unemployment Official US Bureau of Labor Reported Rate Official Rate + Short Term Discouraged Workers Official Rate + Short and Long Term Discouraged Workers Construction Spending Trends Source: Census Bureau construction spending reports $ in Billions Stimulus Package $787 Billion Stimulus Package High Debt What Lies Ahead Central Texas Recession started 1 year later than nation Depth and Length will be shorter Forbes: Austin and Washington DC tied for top spot surviving the recession 1.7m population – up 6.9% What Texas didn’t have - Housing Bubble / Bust Samsung will soon represent $9B foreign investment – largest in Texas history Central Texas School Bond Activity Business Cycle Commodity and Material Inventory •Short Term • Inventories Drying up • Demand Low • Dollar Value low in relation to foreign currency Predictors of construction demand Architecture Billings Indexes (50=balance bet. higher and lower billings) Source: American Institute of Architects (billings) , BLS (employment) Risks to Recovery in 2011-2012 Lack of Confidence in US Government Policies Slowing Growth in China Currently a very high 9% – not a sustainable rate long term Rapid drop would affect US exports and manufacturing Instability of State’s Financial Situation Additional Federal Spending ? Tax / Policy Changes? Unfunded mandates (pensions, benefits, etc.) Will affect personal spending European Debt Crisis Austerity Programs have cut spending dramatically Bond defaults could trigger interest rate increases Source: Jim Haughey, Reed Construction Data Chief Economist Caution Ahead High Risk Environment Under pricing Work Hoping GC for turnaround and Subcontractor Failures Likely higher in 2011 Default Claims Profitable Backlog has been worked off Close doors and wait it out? Double Dip Recession?? ENR National Building Cost Index 5500 5000 4500 4000 3500 3000 2500 2000 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 When will costs begin to rise again – how much? AGC Materials costs: +3% to +8% Labor costs: +2.5% or less Reed Commodities +5% to 6% ABC Total Costs +3% to 6% Contingency Needed Sources Anirban Basu, ABC Chief Economist www.abc.org Ken Simonson, AGC Chief Economist www.agc.org Jim Haughey, RCD Chief Economist www.reedconstructiondata.com Presented by: Jimmy Disler, Executive Director of Capital Improvements, Leander ISD [email protected] Randy Baldwin, Assistant Director of Construction Management, Austin ISD [email protected] Marty Burger, American Constructors [email protected] Grant Hutton, American Constructors [email protected] CONSTRUCTION COST TRENDS Central Texas North Conference – November 12, 2010