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Cement & Construction Outlook
MCA Winter Conference
February 16, 2009
Dave Zwicke, PCA Regional Economist
Overview
 Economic fundamentals are deteriorating quickly.
 Outlook shaped by policy actions.
 Details and size of the stimulus plan are fluid and still
subject to considerable change….adds risk to PCA
projections.
Introduction: The Need For Stimulus…
 Lacking stimulus, the economy enters a deep and long
contraction
 GDP declines 2.7% in 2009 and another 1.5% in 2010
 An additional 6 million more jobs lost and unemployment
reaches 10.4%
 State deficits reach $79 billion in 2009, $102 billion in 2010.
 Cement consumption declines 15% in 2009 followed by
another 8.5% in 2010.
 Single Family housing starts decline to 400,000 annually in
2009 and 2010. Significant recovery does not materialize
until 2012.
Cement Consumption – U.S.
(000) Metric Tons
Stimulus
Peak (2005)-to-Trough Decline:
No Stimulus:
-52 MMT
With Stimulus: -40 MMT
Construction Turning Points
1996=100
180
Residential
2006
160
Public
2008
140
120
100
80
Nonresidential
2008
60
1996
1998
2000
2002
2004
2006
2008
2010
2012
The Bottom Line

Economic outlook remains dim…and getting darker.

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

Sharp Recovery may materialize beginning in 2011
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
Housing
Energy
Financial
Crisis
Inflation
Labor
Markets
2007
2008
2009
2010
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
The Stage Has Been Set…
Unemployment Rate -- % Change Year Ago
Source: BLS
= Recession
Employment declines …
Change in payroll jobs (000)
Source: BLS
Missouri Unemployment
Unemployment Rate
Source: BLS
= Recession
Housing had been the catalyst…
Units (000)
Source: Census, S&P Case Shiller
Annual Growth
Consumers now a major drag…
Annual Percent Change
Monetary Policy
Federal Funds Rate
Recession
Risks Prompt
Fed Rate Cuts
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
Jan - Sep, Gasoline Prices
have increased $.92 cents =
Equating to a $92 Billion
Annualized Draw on
Consumer Spending
Source: Department of Energy
Economic Growth Outlook
Percent Change, GDP Growth Rate
Recession
Scenario: With
Stimulus
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
-2.00%
-3.00%
Recession Scenario:
No Stimulus
-4.00%
-5.00%
2008.1
2008.3
2009.1
2009.3
2010.1
2010.3
2011.1
2012.3
Residential Construction
Cement Demand Composition: 5Y AVG
U.S.
Missouri
34%
29.7%
56.2%
43%
14.1%
23%
Public
Residential
Nonresidential
Mortgage Rates
Composite contract rate %
Fed
began
cutting
rates
Easy Credit Period
Foreclosures continue to rise…
% of loans 90 days past due, SA
Source: Mortgage Bankers Association
1st 2nd 3rd
Foreclosures are concentrated…
Below U.S.
Near U.S.
Above U.S.
Source: Equifax, Economy.com
% of households defaulting on their 1st mortgage, 08Q2
US: 1.8%
Home Prices will stabilize in late 2009
Existing Single Family Homes
High Inventories Will Depress Prices
Into 2009
Missouri Housing Permits
Units
Missouri Housing Market
Annual % Change -- Single Family Median Home
Market
Source: National Association of Realtors
Economy
Residential Cement Consumption
Metric Tons
Source: PCA
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 2008-2010
 ROI Softens With Overall Economic Weakness
 Credit Conditions Tightening
 Risks and Uncertainty Grow
Financial Liquidity
Sub Prime
TED Spread – Difference between 3m T-Bill & LIBOR
Nonresidential Cement Consumption – MO
Metric Tons
Source: PCA
Exposure to Credit Crisis
Nonresidential Share of Total Cement Consumption
1
2
3
4
5
6
7
8
9
10
11
12
Source: PCA
NORTH DAKOTA
NEBRASKA
KANSAS
IOWA
MINNESOTA
INDIANA
NATIONAL
WISCONSIN
SOUTH DAKOTA
OHIO
ILLINOIS
MISSOURI
MICHIGAN
28%
21%
21%
20%
20%
18%
18%
16%
16%
15%
15%
14%
12%
Office Vacancy Rates.
Percent Vacant
Source: CB Commercial
Office Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q4, 2008
Q4, 2007
Source: CBRE
Office Cement Consumption - MO
Metric Tons
Source: PCA
Industrial Vacancy Rates
Percent Vacant
25
20
St. Louis
15
Kansas City
10
5
0
1995Q1
Source: CB Commercial
1999Q3
2004Q1
2008Q3
Industrial Production – U.S.
Institute of Supply Management Index
Source: CB Commercial
Industrial Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q4, 2008
Q4, 2007
Source: CBRE
Industrial Cement Consumption- MO
Metric Tons
Source: PCA
Retail Sales Decline…
Annual Percent Change
Source: U.S. Census Bureau
Retail Cement Consumption
000 Metric Tons
Source: PCA
Public Construction
Cement Demand Composition: 5Y AVG
U.S.
Public
Missouri
Residential
Nonresidential
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% +
Fiscal Health - Missouri
Surplus/Deficit Index, 2005=100
Surplus
Deficit
Exposure to Fiscal Deficits
SAFETEA-LU Share of Total Highway Spending
1
2
3
4
5
6
7
8
9
10
11
12
Source: PCA
MINNESOTA
IOWA
KANSAS
ILLINOIS
OHIO
MICHIGAN
NATIONAL
WISCONSIN
NEBRASKA
MISSOURI
INDIANA
SOUTH DAKOTA
NORTH DAKOTA
25%
26%
29%
29%
34%
34%
34%
35%
39%
40%
40%
49%
49%
Public Cement Consumption - MO
000 Metric Tons
2008: -2.0%
2009: -8.3%
2010: -2.6%
2011: +4.1%
Source: PCA
Take a Step Back…
Current Stimulus Plan

$787 Billion

$120B Infrastructure/Science
 $27.5B Highways (Missouri: $637 Million)
 Allocation (70% State / 30% Local)

$196B Aid to State Governments
 $54B Fiscal Relief

$282B Tax Cuts
“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
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
U.S. Cement Demand -- Senate
Stimulus Scenario
Fall Forecast
Annual Change
2009
85,485
-11.6%
2010
83,327
-2.5%
2011
91,507
9.8%
No Stimulus
Annual Change
76,950
-19.0%
70,025
-9.0%
76,327
9.0%
5,004
500
5,504
16,972
3,394
20,366
6,641
13,281
19,922
82,454
-13.2%
90,391
9.6%
96,248
6.5%
Direct Tons
Indirect Tons
Total Added Demand
Total Market
Annual Change
Total Cement Consumption – Missouri
000 Metric Tons
No Stimulus
2008: -12.6%.................
2009: -11.9%.................
2010: -1.9% (+9.5%)
% ………..
Source: PCA
Stimulus
Long Term Cement Consumption
Thousands Metric Tons
Missouri
2007: 2.4 MMT to 2030: 3.7 MMT
Long Term Conclusions
 Cyclical downturn is temporary.
 Growth rates 2011-2013 extremely strong.
 Demographics remain favorable.
 Green building adds to consumption.

Residential alone could add 9MMT over demographics.
 Consumption could approach 200MMT by 2035.
Cement & Construction Outlook
MCA Winter Conference
February 16, 2009
Dave Zwicke, PCA Regional Economist