1. Ed Sullivan Chief Economist, Group VP
PCA Fall Committee Meeting
Cement Outlook:
Ed Sullivan
Chief Economist, Group VP

2. Portland Cement Consumption Thousand Metric Tons=

3. Portland Cement Consumption Thousand Metric Tons
July SAAR = 92.8 MMT Strongest Since July 2008 =

4. Portland Cement Consumption Thousand Metric Tons
Past 12 Month Average = 6% =

5. Portland Cement Consumption Thousand Metric Tons
Past 4 Month Average = 8% =

6. Portland Cement Consumption Thousand Metric Tons
Step Progression = 11% =

7. Portland Cement Consumption Thousand Metric Tons=
Current Forecast
Spring Forecast

8. Capacity Utilization Annual Production Divided by Capacity

9. Economic Outlook Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

10. Net Job Creation Accelerates
Annual, Thousand Jobs
Since 2011 economy has added more than 2 million jobs annually. Reached pre-recession October 2007 level in March.
Relatively stable net job creation even during recent economic growth pauses.
The rate of annual increase has slowly been increasing. This rate is expected to gradually accelerate – reaching 3 million in 2017.
State & local governments have started adding jobs – a result of improving fiscal conditions & precursor to increases in general spending – public construction.
Office, retail, health care, services are well into sustained recovery in hiring.
Federal government hiring is nearing , but not reached, a trough point.

11. Consumer Confidence Outlook
Conference Board
Fundamentals suggest sustained improvement in consumer confidence
Uneven pattern continues to show improvement.
Interest rates remain relatively low for the near term.
Inflation remains benign for now.
Job growth accelerates.
Consumer debt position is favorable.
Lending standards gradually ease.

12. Inflation remains tame for now
Inflation Rate
CPIU, Annual % Change
In the context of slower world growth, oil prices are expected to ease in 2015, according to the EIA. Acceleration thereafter.
Utilization rates slowly recover. Approach 80% utilization by 2016.
Unemployment slowly retreats. Receding to 5% by 2019.
2016: Rising oil prices, utilization rates high, unemployment below 6% . Potentially alarming cocktail for acceleration in inflation.
Fed starts contractionary monetary policy mid-2015.

13. Fed Policy Likely Actions: Hold the Line Until Mid-2015, Modest Hikes Thereafter
2014
All Fed Governors, except one, support no change in Federal Funds rate.
2015
Fed balances labor market against inflationary pressures. Fed questions validity of “true” unemployment rates. Suggests Fed will error on side of slow/late interest rate hikes.
Risk
Fed reaction to late and too light. Inflation could accelerate beyond what is contained in PCA forecast. Out year robustness could be curtailed by significantly higher interest rates.
Annual Interest Rate
Federal Funds Rate

14. Timing of the Recovery 2012:Q1 – 2014:Q2 2014:Q3- 2015:Q4
2016:Q1 through 2019
Anemic recovery continues.
High level of consumer uncertainty prevails
Congress disrupts consumer confidence and economic momentum.
Labor markets record steady gains – generating 100K to 150K net new jobs monthly
Consumer remains key contributor to growth.
Business spending hindered by uncertainty.
Government spending works as a significant drag on growth.
Economic news remains mixed.
Recovery enters transition from slow growth to more robust growth.
Business and consumer uncertainty begins to abate.
Job gains accelerate to more than 200K new jobs monthly.
Consumer remains significant contributor to growth but is supported by modest increases in capital spending.
Manufacturing sector shows modest but sustained improvement.
State & local fiscal conditions improve, surpluses emerge.
Economic news is mixed but grows increasingly positive.
Recovery enters robust growth stage.
Strong investment spending reinforces consumer spending. Federal & state government spending increases.
Pent-up demand is released – strengthening consumer/investment spending.
Labor markets continue to improve – unemployment rate begins to “normalize”
Business and consumer certainty emerges.
Economic news no longer mixed – reflect positive fundamentals.

15. Real GDP Annual Growth Rate
2014: 2.1%
2016: 3.4%
2017: 3.3%
2015: 3.2%
2013: 2.2%
2013
2014
2015
2016
2017

16. Housing Outlook Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

17. Housing Sales In Transition
Sales activity has less support than in previous years from distressed properties.
Sales activity not supported by discounted properties . Focus now on more basic fundamentals of demand – namely affordability.
Mortgage rates expected to hit 5% in 2014 and near 6% next year. Home prices continue to rise above inflation. Income growth shows modest gains though 2015.
Affordability remains very favorable from a historical point of view.
Lending standards remain tight but are slowly easing. As economy firms, lending risks decline and PCA expects this will materialize in lending standards.
Risk: If no easing, sales pace envisioned could be threatened.

18. Single Family Sales Outlook
SF Sales to Employment Ratio
Fewer distressed properties means improved competitive position for new homes. New home share of total sales increases.
Job creation directly results in household formation.
Low interest rates create favorable affordability. Access to credit is improving.
Damaged credit, aging population and student loan balances hinder improvement in SF sales – adds to demand for MF.
Rents rise at 4%-5% annual rate. Hinders increase in mortgage-to-rent ratio.

19. Housing Starts Outlook
Housing Starts Thousands of Units
Days supply is low and starts activity is targeted to roughly 5 monthly supply throughout the forecast.
New home prices rise at rates above inflation rate.
Constraint to construction - such a labor shortages & property availability - are assumed to be temporary and fixed by the market.
Starts mix remains trending toward multifamily.

20. Housing Starts Outlook
Multifamily Starts Share of Total
Days supply is low and starts activity is targeted to roughly 5 monthly supply throughout the forecast.
New home prices rise at rates well above inflation rate.
Constraint to construction - such a labor shortages & property availability - are assumed to be temporary and fixed by the market.
Starts mix remains trending toward multifamily.

21. Nonresidential Outlook
Presentation
Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

22. Update: Job Creation Relationship to Changes in Cement Consumption Past 12 Months, Thousand Net New Jobs, Thousand Tons c
Change in Cement Consumption

23. Nonresidential Recovery: Details
2013
2014
2015
2016
2017
2018
2019
Nonresidential Buildings
3.5%
6.1%
8.7%
9.2%
6.9%
5.6%
Industrial
3.6%
3.8%
5.2%
4.4%
4.2%
3.0%
2.9%
Office
7.6%
16.4%
13.8%
12.9%
8.8%
2.6%
Hotels, Motels
23.0%
10.1%
6.8%
4.3%
4.9%
Hospitals, Institutions
-10.0%
-7.3%
2.8%
8.9%
8.5%
7.8%
7.3%
Religious
-12.3%
-5.2%
1.3%
5.0%
Educational
-0.8%
-4.7%
5.5%
5.3%
Other Commercial
11.1%
14.1%
8.3%
9.7%
9.9%

24. Oil Prices EIA Projections

25. Update: Nonresidential Cement Outlook Thousand of Starts

26. Public Outlook Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

27. Public Construction Outlook
Public Construction Growth Rate
Real $, Annual
93% of public construction performed at state/local level.
State/Local fiscal problems fading.
Revenue growth improves with economy and job growth.
Surpluses will re-emerge.
Pent-up demand released.
Highway Bill held at current nominal levels.
Impact: Public construction has reached trough. Growth is led by improving conditions at state and local governments.

28. Market Drivers are Changing Composition of Highway Consumption
Highway Bill

29. State Deficit Outlook Billion Net Balance (Revenues Less Expenditures)

30. Local Employment & Home Prices
Based on Three Year Lag Between Home Prices and Employment, the ongoing improvement in prices implies a significant upturn in local spending beginning in 2015
Home Prices Lagged Three Years

31. Summary Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

32. Portland Cement Consumption Thousand Metric Tons=
Current Forecast
Spring Forecast

33. Ed Sullivan Chief Economist, Group VP
PCA Fall Committee Meeting
Cement Outlook:
Ed Sullivan
Chief Economist, Group VP