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					Construction Industry
Snapshot and Forecast

              by
   Mike Eby, Editor-in-Chief
      EC&M magazine
Phrases you don’t really want
to use as ice breakers at a
holiday party
 Stalled recovery
 Expiration of incentives
 Budget shortfall
 Flat forecast
 Double dip recession
Current State of Affairs
  Economic indicators seem to be moving
   in the right direction, but progress is
   excruciatingly slow
  Many of the key data points have
   bounced off the bottoms they
   experienced during the recession, but
   are struggling to gain any momentum
Housing Starts
  Dipped 0.3% in October as compared to prior
   month, but was up 17% as compared to
   October 2010 level
    Single-family starts climbed 3.9% for the month,
     but dropped 0.9% year-over-year
    Multi-family dropped 8.3% for the month, but is
     still 89% higher from a very low October 2010
     level


             Source: U.S. Census Bureau
Building Permits
 Up 11% in October and 18% year-over-
  year
   Single-family up 5.1% for the month and
    6.6% year-over-year
   Multi-family up 24% for the month and
    48% year-over-year


           Source: U.S. Census Bureau
Residential Remodeling
  The BuildFax Remodeling Index is based on
   construction permits filed with local building
   departments across the country
  Index rose 34% year-over-year in September to
   141.4, a new high.
     Up month-over-month 2.8 points (2%) from the August
      value of 138.6
     Up year-over-year 36.3 points from the September 2010
      value of 105.1
  National numbers appear to be skewed by lots of
   activity in the West region of the country

                   Source: BUILDERadius
Residential Remodeling
  The Residential Remodeling Index (RRI) is a
   quarterly measure of remodeling activity in
   336 metropolitan statistical areas in the U.S.
  3rd quarter RRI declined 0.8% from 2nd
   quarter
  October forecast calling for minor decline in
   4th quarter


                Source: Hanley Wood
Non-Residential Construction
Spending
  Fell 0.2% in October to seasonally adjusted
   annual rate of $551.2 billion, according to
   U.S. Census Bureau
    Down 0.9% from one year ago
  Private non-resi spending was up 1.3% this
   month and is 8.4% higher than a year ago
  Public non-resi spending was down 1.8% for
   the month and down 8.9% from a year ago
           Source: U.S. Department of Commerce
Non-Residential Construction
Spending (cont’d)
 Four subsectors realized higher
  spending levels from same time last
  year
   Manufacturing (+13.3%)
   Power (+12.6%)
   Commercial (+10.0)
   Educational (+2.6%)
         Source: U.S. Department of Commerce
Non-Residential Construction
Spending (cont’d)
  “For months, the non-resi construction
   industry has been characterized by rising
   levels of privately financed construction and
   declining levels of publicly financed
   construction.”
  “Construction volume may slip for several
   months before stabilizing and beginning a
   sustained recovery in earnest.”
         Source: Anirban Basu, Chief Economist,
         Associated Builders and Contractors
Capacity Utilization
  Measures current output versus potential
   output at U.S. factories
  80% rate is considered the tipping point
   where factories begin expanding their
   facilities or retrofitting existing lines
  Dropped to a level of about 70% in 2009 and
   now sits at about 76%
  Hey, we’re moving in the right direction!

             Source: Federal Reserve Board
Purchasing Manager’s Index
  Measures the appetite that industrial
   purchasing manager’s have for new products
   (a reading above 50 indicates a healthy
   purchasing environment)
  Posted a November reading of 52.7%
   (October reading was 50.8%)
  Readings have indicated an expanding
   market for 28 consecutive months

         Source: Institute for Supply Management
Machine Tool Orders
  A pure indicator of the health of industrial
   businesses
  Hit a level of $606.6 million in September,
   which was the second highest monthly dollar
   total in the last 15 years!
  Year-to-date total of $4.1 billion is up 91.9%
   as compared with 2010

              Source: American Machine
              Tool Distributors Association
Source: American Machine
Tool Distributors Association
Electrical Manufacturer’s
New Orders
 New orders have been flat this year,
  but fairly steady
 Up 5% year-to-date through September
  at a level of $3.87 billion
 Also up approximately 5% year-to-year


        Source: U.S. Department of Commerce
Business Conditions Survey
 Latest Electroindustry Business
  Confidence Index on current conditions
  reflects optimism
   November reading at 56
 Future reading continues to point in a
  positive direction (looking 6 months into
  the future)
   November reading at 60
                Source: NEMA
Truck Tonnage Index
  Trucking serves as a barometer of the U.S.
   economy, representing 67.2% of tonnage
   carried by all modes of domestic freight
   transportation, including manufactured and
   retail goods.
  Tonnage readings continue to show that
   economy is growing and not sliding back into
   recession

          Source: American Trucking Association
Truck Tonnage Index

 Index increased 0.5% in October
   Up 5.7% from one year ago
 October’s tonnage reading was just
  4.4% below the index’s all-time high in
  January 2005.


         Source: American Trucking Association
Source: American Trucking Association
  So where do
we go from here?
   A View From
  the Distributor
Side of the House
DISC Analysis
  This year started off strong, led by a surge in
   the industrial market (+20% in the 1st
   quarter). Growth should remain steady
   through the remainder of this year.
  Total electrical industry sales should end the
   year about 9% higher than last year.
  However, if we take out about a 7% price
   factor, we’re really only up about 2% in
   physical volume.
         Source: Distributor Information Services Corp.
DISC Outlook
 2012 is fraught with uncertainty
   Project strong growth in residential market,
    with a huge upturn in 2013
   Commercial and industrial to flatten out
 In other words, look for another year of
  belt tightening


       Source: Distributor Information Services Corp.
DISC Outlook
 Growth rate in 2013 could be as high as
  7%, followed by double digit increase in
  the 2014-2015
 Over the five year period between 2010
  and 2015, electrical industry distributor
  sales will grow close to 10% annual
  rate

       Source: Distributor Information Services Corp.
Electrical Wholesaling ’s Outlook
 EW’s Top 200 electrical distributors
  forecast a 5.1% increase in sales next
  year
 It’s interesting to note, however, that of
  the 236 distributors who provided a
  sales forecast, 41% expect their sales
  to stay the same
  A View From the
Manufacturing Sector
Manufacturing Production
Outlook
 Investment in business equipment and
  increased exports will be economic
  driver for next 5 years
 Manufacturing production growth rates:
   2011 – 4.3%
   2012 – 3.4 %
   2013 – 3.8%

          Source: Manufacturers Alliance for
          Productivity and Innovation
Manufacturing Production
Outlook (cont’d)
  Expect a net increase in hiring:
    2011 – 230,000 jobs
    2012 – 170,000 jobs
    2013 – 140,000 jobs
  Project industrial equipment expenditures to
   advance by:
    12.1% in 2011
    10% in 2012
    5.2% in 2013
            Source: Manufacturers Alliance for
            Productivity and Innovation
   A View
  From the
Home Builders
Housing Starts
  Good news
    Forecast calls for double-digit increases in 2012
     for the total market (+14.9%)
       Single family units (+16.8%)
       Multi-family units (+10.3%)

  Bad news?
    Last year’s forecast called for even bigger
     increases, which never materialized

          Source: National Association of Home Builders
Housing Starts (single-family)
                   Predict starts to hit
                    495,000 units in 2012
                    and 723,000 units in
                    2013
                   Feels current level is
                    merely maintaining
                    housing stock
                   However, at this time
                    last year they predicted
                    a 33% rebound for
                    2011
Housing Starts (multi-family)

                   Following a strong
                    showing this year,
                    NAHB predicts starts
                    to improve another
                    13% and 14% in
                    2012 and 2013
Residential Remodeling
Outlook
  A sluggish economy and housing market will
   continue to hamper home improvement
   spending well into next year, according to the
   Leading Indicator of Remodeling Activity
   (LIRA)
  The remodeling market is expected to stay
   soft with the LIRA pointing to a modest
   decline in annual homeowner improvement
   spending over the next several quarters.
             Source: Joint Center for Housing
             Studies, Harvard University
 A View From a
Lodging Industry
 Market Analyst
Hotel Construction
 Projects under construction remain at
  cyclical lows
 Scheduled starts in the next 12 months
  fell below the 100,000 rooms level for
  the first time in memory
 Scheduled starts are expected to trend
  further downward
           Source: Lodging Econometrics
   A View From the
Associated Builders and
Contractors Association
Private Up, Public Down
  ABC expects 2012 to be a year of gradual
   progress
  Advances in private construction are partially
   offset by ongoing declines in publicly financed
   construction
  Following a 2.4% decrease this year, non-
   residential construction spending is expected
   to grow 2.4%
         Source: Associated Builders & Contractors
                                                                                           % Change
           Indicator                     2010               2011*             2012*        2011-2012
Construction Spending – (millions, seasonally adjusted annual rate) - U.S. Census Bureau
Total Nonresidential
               Lodging                  $11,329             $8,514              $9,025         6%
                Office                  $37,573             $34,181            $36,505        6.8%
            Commercial                  $40,522             $43,447            $46,575        7.2%
            Health Care                 $39,879             $40,621            $43,871        8.0%
            Educational                 $88,227             $85,359            $81,945       -4.0%
                Power                   $78,540             $87,519            $95,396        9.0%
           Manufacturing                $38,106             $35,636            $38,487        8.0%
        Total - All Industries          $554,915           $541,599            $554,414       2.4%
Private Nonresidential
               Lodging                  $10,904             $7,976              $8,455         6%
                Office                  $24,231             $22,315            $24,250        8.7%
            Commercial                  $37,647             $39,988            $43,050        7.7%
            Health Care                 $30,316             $29,575            $31,960        8.1%
            Educational                 $13,356             $13,424            $13,400       -0.2%
                Power                   $66,601             $75,105            $82,000        9.2%
           Manufacturing                $37,478             $34,956            $37,753         8%
        Total - All Industries          $261,796           $263,538            $281,836       6.9%
Public Nonresidential
                Office                  $13,342             $11,866            $12,255        3.3%
            Commercial                   $2,876             $3,459              $3,525        1.9%
            Health Care                  $9,562             $11,046            $11,911        7.8%
            Educational                 $74,871             $71,935            $68,545       -4.7%
                Power                   $11,939             $12,414            $13,396        7.9%
        Total - All Industries          $293,119           $278,060            $272,578       -2%



                       Source: Associated Builders & Contractors
      A View From the
Portland Cement Association
Softening Their Stance
 Last summer, the PCA thought total
  construction put-in-place figures would
  decline 4.9% this year and increase
  1.8% in 2012
 They have now downgraded their
  outlook to flat in 2012 and said “real
  growth may not appear until after
  2013”
         Source: Portland Cement Association
A View From Reed
Construction Data
As a Whole
 RCD projects a 2.9% decline in total
  spending this year as national economy
  continues to struggle through period of
  slow growth
 Assuming no secondary recession, RCD
  forecasts total construction spending to:
    increase 3.9% in 2012, and
    increase 6.8% in 2013

          Source: Reed Construction Data
                                  U.S. Total Construction Spending
                                     (billions of U.S. current dollars)
                                 Actual                                         Forecast
                  2008           2009              2010               2011       2012              2013
New Residential   237.0          141.2            136.2             128.6         132.4            142.1

 Year-over-year
                  -34.3%        -40.4%            -3.5%            -5.6%          2.9%             7.3%
% Change

Residential
                  120.7          112.7            112.5             112.8         110.3            115.2
Improvements*
                  -13.5%        -6.6%             -0.2%             0.3%          -2.2%            4.5%
Nonresidential
                  437.7          375.7            288.9             276.0         290.0            314.0
Building
                   8.4%         -14.2%           -23.1%            -4.5%          5.1%             8.3%

Heavy
Engineering       272.1          273.5            266.0             263.3         278.5            294.8
(Non-Builidng)

                    9.7%         0.5%             -2.8%            -1.0%          5.8%             5.9%
Total**           1,067.6        903.2            803.6            780.7          811.1            866.1
                   -7.4%        -15.4%           -11.0%            -2.9%          3.9%             6.8%
                               *Residential Improvements include remodeling, renovation and replacement work.
                                         Number also includes RCD estimate of improvements to public housing.
                                              **Total may not equal the sum of its components due to rounding.
                       Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.
Residential Sector
  RCD outlook is for slow, but steady
   improvement in residential construction
     Single-family permits have been trending up for
      the past eight months
     Lean inventories mean any increase in demand
      will quickly translate to construction activity
  Forecast is for residential spending to:
     Fall 5.6% in 2011
     Rise 2.9% in 2012
     Rise 7.3% in 2013
            Source: Reed Construction Data
                                      Residential Construction Data
                                     Actual                                      Forecast
                       2008        2009         2010          2011               2012              2013
Total Starts            906         554          587           596                646               743

                       -33.2%     -38.8%          5.9%           1.6%             8.3%             15.1%
Total Single-family
                        622        445            471             422             434               476
Starts

                       -40.5%     -28.4%          5.9%          -10.4%            2.9%             9.6%
Total Multifamily
                        284        109            116             174             211               268
Starts

                       -8.3%      -61.6%          6.2%           50.4%           21.4%             26.6%
Residential
Construction
Spending
(Billions Current $)
New Residential        237.0       141.2          136.2          128.6           132.4             142.1

                       -33.1%     -40.4%         -3.5%           -5.6%            2.9%             7.3%
Residential
                       120.7       112.7          112.5          112.8           110.3             115.2
Improvements*

                       -13.5%     -6.6%          -0.2%           0.3%            -2.2%              4.5%
                                                                                    Housing starts in thousands.
                                *Residential Improvements include remodeling, renovation and replacement work.
                                          Number also includes RCD estimate of improvements to public housing.
                        Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.
Non-Residential Sector
 RCD reports non-residential
  construction spending has slipped for
  the last three months, following four
  months of increases
   Activity in the near term will be limited
 Current projections
   Decline of 4.5% in 2011
   5.1% growth in 2012
   8.3% growth in 2013
           Source: Reed Construction Data
U.S. Non-residential Construction
(millions of U.S. current dollars)

            Actual                            Forecast
  2008      2009        2010        2011       2012      2013
  437,744   375,742    288,921     275,976    289,977    313,992
   8.4%     -14.2%     -23.1%       -4.5%      5.1%       8.3%




             Source: Reed Construction Data
The Dreaded
Recession Scenario

 Issued in early September 2011
                         Year-over-Year % Change
                  2010       2011       2012    2013
   Baseline
                  3.0%       1.6%       1.6%       2.4%
   Forecast
   Recession
                  3.0%       1.2%       -1.6%      2.0%
   Forecast



               Source: Reed Construction Data
A View From
 FMI Corp.
As a Whole
 FMI expects total construction put-in-
  place to be up 2% this year and 6% in
  2012
 But if you take inflation out of these
  numbers, then they’re looking at a 1%
  drop this year and a 3% increase in
  2012
            Source: FMI Corp.
Lodging
 Lodging construction will drop 16% to
  $10 billion this year and show some
  signs of growth with a 4% rise in 2012
 This sector has dropped around 55%
  from its highs in 2008
 Green building is commonplace in
  remodels and retrofits

            Source: FMI Corp.
Office
 Office construction will drop another
  5% this year, on top of a 32% in 2010

 Minor improvement expected in 2012 to
  get to $45.5 billion



            Source: FMI Corp.
Commercial

 Commercial construction typically lags
  residential by 12 to 18 months
   Won’t improve much in coming years
 Bright spot is discount and food
  retailers who have major expansion
  plans


            Source: FMI Corp.
Health Care
 Health care construction will grow a
  mere 2% this year, 3% in 2012
   However, despite slower growth rates, this
    sector remains at a historically high level
 Lots of facility renovation and
  modernization work taking place
 Uncertainty over health care bill’s effect
  continues to delay expansion plans

             Source: FMI Corp.
Education
 Construction put in place figure to drop
  2% this year and rise 4% in 2012
 Renovation work to improve energy use
  will continue to drive work in this sector
 Seeing an increased use of
  prefab/modular construction techniques
  being used in this sector

             Source: FMI Corp.
Public Safety

 Public safety construction lost 8% in
  2010 and another 4% this year
   Forecasted to drop another 3% in 2012
 However, it’s not as bad as it sounds
   The current levels are well above those
    realized during the 2000-2006 timeframe


            Source: FMI Corp.
Manufacturing
 Peaked in 2009, but dropped 33% in
  2010 and is expected to drop another
  6% this year
   Project another 2% drop in 2012
   Growth not expected to return until 2013
 This sector has lost more than 5 million
  jobs in the last decade

             Source: FMI Corp.
Power
 Power construction has benefited from
  wind and solar growth, as well as the
  need for grid modernization
 Construction put in place this year
  should be $89.7 billion or 7% over 2010
   5% growth expected in 2012
 Steady growth expected in this sector
  for many years
            Source: FMI Corp.
Water Supply / Sewage and
Waste Disposal

 Expected to fall 2% this year, but rise
  steadily through 2015




            Source: FMI Corp.
A View From
McGraw-Hill
Construction
As a Whole
 McGraw-Hill Construction (MHC) is
  forecasting no growth for construction
  starts next year, following a 4% drop
  this year
 MHC’s chief economist notes, “Given
  the economy’s current fragile condition,
  an overall recovery may not come until
  2013 or 2014.”
          Source: McGraw-Hill Construction
Stores
 Construction peaked in 2007, then fell
  75% over next four years
 Project no growth this year and a mere
  2% rise in new square footage in 2012
 Extreme discount chains lead the
  charge in this group


         Source: McGraw-Hill Construction
Warehouses
 Sector fell sharply in 2008-2010
  timeframe, but now seeing some
  upward movement
   18% rise in square footage total in 2011
   Project another 17% rise in 2012
 Increased trade should lift demand for
  additional space
           Source: McGraw-Hill Construction
Hotels
 Steep declines last two years, but
  projecting a 34% increase in square
  footage this year and another 17% rise
  in 2012
 Business travel has been strong and
  industry financials have strengthened


         Source: McGraw-Hill Construction
Offices
 After a steep decline that started in
  2007, market is beginning to flatten out
   2% drop in new square footage this year
   4% increase in 2012
 Recent activity has taken place in the
  government building, data center, and
  corporate building areas
          Source: McGraw-Hill Construction
Education
 School construction continues to decline
   14% decline in new square footage
    projected this year on top of double-digit
    declines prior two years
     Looking at a 9% drop in 2012
 2012 figure is comparable to levels
  realized back in the late 80s

          Source: McGraw-Hill Construction
Healthcare Facilities
 After falling by nearly 40% in 2009,
  sector rebounded by 6% in 2010 and is
  expected to hold steady this year and
  next
 Still a need to replace aging facilities
  and meet the needs of a growing
  elderly population

          Source: McGraw-Hill Construction
Public Buildings

 A reduction in federal spending and the
  end of the stimulus package will hit this
  sector hard
 Look for a 27% drop in square footage
  this year and another 9% drop in 2012


          Source: McGraw-Hill Construction
The Dreaded
Recession Scenario
                                  Baseline Forecast       Recession Forecast
                                   2011       2012         2011      2012
 Total Construction                -4%          0          -5%        -7%
  Commercial Buildings             +6%        +8%          +5%        -6%
  Institutional Buildings          -15%        -2%         -15%       -3%
  Manufacturing Buildings         +35%        +4%         +30%        -5%
  Single-Family Housing            -5%        +10%         -6%        -2%
  Multi-Family Housing            +13%        +18%        +12%        -5%
  Public Works                     -16%        -5%         -17%       -7%
  Electric Utilities              +48%        -24%        +45%       -35%

                       Source: McGraw-Hill Construction
A Couple of Markets
 to Keep an Eye On
Power Transmission
  Line construction business in the early stages
   of a 10 to 20 year boom
  Investment will likely range from $12 billion to
   $16 billion annually through 2030*
  Two real drivers:
    The need to deliver large amounts of renewable
     sources to population centers
    Increase the reliability of the grid


             *Source: Brattle Group
Green Projects
 Cash-strapped manufacturers are
  looking for energy savings projects
 Commercial buildings benefit from
  upgraded lighting and HVAC systems
 Public and educational buildings leading
  the charge
 Utility rebates/incentives help sell these
  projects
    And Finally,
      A Few
Regional Predictions
Industrial Trends Report -
Philadelphia
  Market still up on year, but demand stalls
  Speculative construction remains nearly non-
   existent
  Manufacturing losses should slow in coming
   quarters
  Rents should hold steady
  Stable consumer spending should translate into
   more warehouse/distribution demand over the
   next few months
               Source: Grubb & Ellis
Office Trends Report -
Philadelphia
  Little to no growth the norm
  Look for more of the same in the coming
   quarters as the regional labor market
   struggles to rebound
  Consolidations and downsizings in the
   pharmaceutical sector will continue to drag
   on the market’s prospects for real growth

               Source: Grubb & Ellis
Electrical Distributor Industry
Sales – Philadelphia MSA

                      History           Forecast     Forecast
         $ Million     2010               2011         2012
 Total               $1,181,700         $1,244,157   $1,232,044
  (% change)           4.6%               5.3%         -1.0%
 Contractor          $430,979           $437,466     $417,032
  (% change)           1.7%               1.5%         -4.7%




                         Source: DISC
Electrical Distributor Industry
Sales – Regional Forecast (+4%)
                         2010             2011         2012
 Middle Atlantic         $10,767.7       $11,607.7     $12,070.7

 New Jersey                 $4,076.1        $4,394.0     $4,569.3

 New York                   $4,398.9        $4,742.1     $4,931.2

 Pennsylvania               $3,196.6        $3,446.0     $3,583.4


  Data center construction is strong in this region
  Airport expansion projects at JFK and in Philadelphia
  Philly (14%) and New York (9.6%) sport two of the lower
   downtown vacancy rates in the nation, according to Grubb &
   Ellis’ 2Q 2011 data
                    Source: Electrical Wholesaling
 Thank you for this
wonderful opportunity

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