1. Stimulus Assessment: 2009-2011
Ed Sullivan, Chief Economist PCA

2. Introduction: Stimulus
Underlying Economic Fundamentals
And…they are deteriorating at an alarming rate!
Stimulus Details
Stimulus Effectiveness
Stimulus Timing
Stimulus Size
Metals Volume Estimates

3. Underlying Economic Fundamentals

4. States in Recession July 2007 October 2008 December 2008 May 2008ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK
July
2007 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI
October 2008 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI
December 2008 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI
May
2008 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI
January
2008 NH VT MA RI CT NJ DE MD
Recession
At Risk
Growing
Source: PCA/BLS

5. 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
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

6. Economic Outlook: Five Factors
Financial
Crisis
Energy/
Inflation
Labor Markets
State Deficits
Sub-Prime
Mortgage Payments
Credit Cards
Defaults
Tight Lending Standards
Home Price Declines
Reliance on Home Equity Gone
Defaults
Write-Downs
Risk Aversion
Tight Lending Standards
Commercial, Consumer, homeowner capital access reduced
Global
Structural Global Realities
Gasoline Prices
Heating Prices
Fertilizer/Biofuels hit Ag Prices
Supply Side Costs Ingrained
Cost of Business
Adds Weakness to Dollar
Slower Economic Growth
One Million Job Loss in 2008
Housing Recovery Delayed
Nonresidential Declines
State Fiscal Crisis Looming
Public Declines
Slower Job
Revenues Slow
Entitlement Programs Continue
Deficits
Drag on Recovery
Offsets Possible Federal Stimulus Package

7. Economic Adversity 2006 2007 2008 2009 2010 Sub-Prime Energy Financial
Crisis
Inflation
Labor Markets
State Deficits

8. Net Job Creation (Loss) - Annual Change, Thousand Net Jobs=
Job Loss 2009 = 4.1 Million
Job Loss 2010 = 1.8 Million
Unemployment Peaks at +11% Early-2010

9. Consumers feel the crunch…
Annual Percent Change

10. No Stimulus Job Loss Estimates
Million Jobs
2008
Obama Economists
PCA

11. Regardless of Stimulus’ Effectiveness, Laid Atop Weaker Fundamentals
Point One
Regardless of Stimulus’ Effectiveness, Laid Atop Weaker Fundamentals

12. Point One
Regardless of Stimulus’ Effectiveness…it will be laid atop dramatically weaker fundamentals……
…Impacting volume estimates for

13. Stimulus Size: Expectations for Growth
Stimulus Not a Silver Bullet…and..the untold Story on Expectations

14. “Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010
Policy Tool
Objective
2009
2010
2011
Job Saving
Job Creating
Tax Cuts, Entitlement Spending, State Aid
Stabilize Economy, halt adverse momentum
Phase I
Shovel Ready Projects
Job Creation
Phase II
Job Creation, Address Structural Economic Issues
Long Term Investments
Phase III

15. Stimulus: GDP Impacts 2009-2010 2009-2010
Change in GDP From No Stimulus Scenario
Obama Economists
PCA
GDP 4th Q 2010:
$12.2 Trillion
GDP 4th Q 2010:
$11.6 Trillion
Note: Stimulus in PCA Outlook Overlaid upon weaker Fundamentals.

16. Stimulus: Job Creation Estimates
Million Jobs
Obama Economists
PCA
Unemployment: 8.8%
Unemployment: 7.0%
Job Estimates have large impacts on Cement/Concrete recovery assessments.

17. Economic Growth Outlook
Percent Change, GDP Growth Rate
Recession Scenario: With Stimulus
Recession Scenario: No Stimulus

18. Expectations Vs Reality: More Stimulus May be Needed
Point Two
Expectations Vs Reality: More Stimulus May be Needed

19. 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.

20. Phase One: Tax Cuts, Entitlements, State Aid
Expectations Vs Reality: More Stimulus May be Needed

21. “Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010
Policy Tool
Objective
2009
2010
2011
Job Saving
Job Creating
Tax Cuts, Entitlement Spending, State Aid
Stabilize Economy, halt adverse momentum
Phase I
Shovel Ready Projects
Job Creation
Phase II
Job Creation, Address Structural Economic Issues
Long Term Investments
Phase III

22. 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
Job saving…Metals Volume Saving

23. 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 .

24. 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 “crisis” – measured by potential deficits.

25. Deficit % Share of Total Expenditures
2009 Fiscal Deficits
Deficit % Share of Total Expenditures ME RI MA VT NH AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC MD DE PA NY CT NJ HI
=MO YTD -12, , % loss of 2007 gains
Sectors: Manufacturing & construction continue… Office & Retail & Hospitality weakness 2008
No Deficit
0-10%
11%-15%
16% +
Source: PCA/Census

26. 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.

27. 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”

28. Phase Two: Shovel Ready
Expectations Vs Reality: More Stimulus May be Needed

29. “Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010
Policy Tool
Objective
2009
2010
2011
Job Saving
Job Creating
Tax Cuts, Entitlement Spending, State Aid
Stabilize Economy, halt adverse momentum
Phase I
Shovel Ready Projects
Job Creation
Phase II
Job Creation, Address Structural Economic Issues
Long Term Investments
Phase III

30. “Shovel Ready” Timeline
Jan
Feb
March
April
May
June
July
August
House Bill
Obama Inaugurated
Job Creation May Come Later Than Many Expect
Senate Passes & Bill Signed
Federal Paperwork
State Paperwork
Bid Letting
Bid Review
Contractor Paperwork
Construction Begins

31. 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

32. Significant Relief for Construction does not Materialize in 2009
Point Three
Significant Relief for Construction does not Materialize in 2009

33. 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.

34. Phase Three: “Hard” Infrastructure
Expectations Vs Reality: More Stimulus May be Needed

35. “Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010
Policy Tool
Objective
2009
2010
2011
Job Saving
Job Creating
Tax Cuts, Entitlement Spending, State Aid
Stabilize Economy, halt adverse momentum
Phase I
Shovel Ready Projects
Job Creation
Phase II
Job Creation, Address Structural Economic Issues
Long Term Investments
Phase III

36. Stimulus: Infrastructure Job Creation Estimates
Percent Job Premium Compared to A Resurfacing
Reconstruction, Capacity
New Bridge
New Route
Major Widening
Bridge Replacement
Concrete Intensive Projects Create More Jobs Than Resurfacing

37. Economic Growth Outlook
Percent Change, GDP Growth Rate
Recession Scenario: With Stimulus
Recession Scenario: No Stimulus

38. Adding it Up

39. Spending Details Millions of $

40. Stimulus Scenario Impacts 000 Metric Tons, Cement
2009
2010
2011
Fall Forecast
85,485
83,327
91,507
Annual Change
-11.6%
-2.5%
9.8%
No Stimulus
76,950
70,025
76,327
-19.0%
-9.0%
9.0%
Spending Impact
1,983
10,411
4,131
Tax Impact
750
985
State Aid Impact
2,271
5,576
2,509
Indirect Impact
500
3,394
13,281
Total Added Demand
5,504
20,366
19,922
Total Market
82,454
90,391
96,248
-13.2%
9.6%
6.5%

41. Percent Increase In Consumption Compared to No Stimulus

42. Portland Cement Consumption Thousand Metric Tons=

43. Point Four

44. Point Four
Stimulus gains are substantial beginning in second half of
…But even with these gains…past cyclical peaks are not expected to materialize until 2015.

45. Stimulus Payback in context of Global Recovery
Beyond the Crisis
Stimulus Payback in context of Global Recovery

46. Introduction: Overview
Cyclical correction is temporary.

47. The Economic Recovery:
2008
2009
2010
2011
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

48. Single Family Housing– United States
000 Starts
Pent-Up Demand
= Housing Peaked January 2006
2007: -29% : -37% : 0.0% :+34%
Interest Rates low, Decline in Home Price, Job Recovery Translate into Improved Affordability
Excess Inventories Worked Off

49. Nonresidential Long Term Trend Million Real $, 1996=

50. Spending Payback: Softer Economic Growth
Point Five
Spending Payback: Softer Economic Growth

51. 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).
…But even with these gains…past cyclical peaks are not expected to materialize until 2015.

52. Portland Cement Consumption Thousand Metric Tons=

53. Stimulus Assessment: 2009-2011
Ed Sullivan, Chief Economist PCA