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Virginia’s Construction Outlook
2019 & Beyond
Luck Companies Marketing Research Team: April 2019
1. Recap 2018
2. Outlook for 2019 & 2020
Agenda
Crushed Stone Sales: Virginia
USGS
After 4 years of growth, Crushed Stone sales declined in 2018
3
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cru
shed S
tone S
ale
s (
Tons 0
00)
Virginia Crushed Stone Sales2006-2018
Volume
-3%
Decline
WEATHER?
ECONOMY?
What Happened in 2018?
5
A Normal Year of Rain…2017
6
An Abnormal Year of Rain…2018
7
2019: Still raining…but closer to average
What’s the Economic Outlook?
What’s the Economic Outlook?
Economic Growth (GDP)
Consumer Sentiment
Highway Maintenance
Economic Growth
US Bureau of Labor & Statistics
The national economy continues to grow at a slow pace (<3%).
In 2017, Virginia’s economy grew at its fastest rate since the recession, and is on par with the National
average.
11
3.9%
5.3%
2.3%
0.8%
0.0%
0.5%
2.4%
0.6% 0.7%0.4%
0.0%
1.4%
0.6%
2.0%
3.8%
3.3%
2.7%
1.8%
-0.3%
-2.8%
2.5%
1.6%
2.3% 2.2%2.4% 2.4%
1.5%
2.3%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US & Virginia Real GDP Growth2004-2017
VA US
Economic Growth
US Bureau of Labor & Statistics
In Q2 & Q3 2018, Virginia experienced strong GDP growth.
Virginia’s growth is ranked 20th in the nation.
12
2.0
4.0
2.3
1.8
-2.7
0.1
2.1
1.5
-0.7
2.4
2.8
1.3
2.1
4.2
3.3
2.1 2.2
1.9
1.00.8
1.1
3.5
1.9 1.8
3.0
2.3 2.2
3.4
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
US & Virginia Real GDP Growth (Quarterly)Q1 2015 – Q3 2018
Virginia United States
0
20
40
60
80
100
120
Univ. of Michigan Survey of Consumer Sentiment
Jan 2004- Mar 2019
Consumer Sentiment
Univ. of Michigan Survey of Consumers
The current 12-mo average is at its highest level since June 2001.
In general, consumers are very optimistic about their current and future spending and savings, and
consumer spending is the biggest driver of growth in the economy.
Recession
13
VDOT Maintenance Budget
VDOT Six-Year Improvement Plan FY16
The approved FY19 VDOT Maintenance budget is expected to be 2% more than FY18
The current budget is projecting flat spending in FY20
14
3%
2%
7%
1%
5%
1%
2%
0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
$1,600
$1,700
$1,800
$1,900
$2,000
$2,100
$2,200
$2,300
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Ann
ua
l G
row
th
Main
ten
an
ce B
ud
ge
t (0
00)
VDOT Maintenance ProgramFY13-FY20
Main. Budget Annual Growth
Liquid Asphalt
VDOT
US Refinery Asphalt production is at a 40-year low and is down 9% year-over-year. The limited
supply is contributing to higher prices.
Overall, liquid asphalt prices remain lower than historical average.
15
$0
$100
$200
$300
$400
$500
$600
$700
Virgin
ia A
sp
ha
lt In
de
x
Virginia Asphalt Index
2010 – April 2019
+10% YoY Increase
Largest refinery in
US shuts down due
to declining demand
Construction Spending
Residential Building Permits
Nonresidential Construction
VDOT Construction
Construction Employment
0.3%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
$1,400,000
$1,500,000
Pe
rce
nt C
ha
ng
e (
An
nu
al)
Co
nstr
uctio
n S
pe
nd
ing
(S
ea
so
na
lize
d:0
00
)
US Construction Spending Jan 2006- Jan 2019
% Change Construction Spending (Seasonally Adj)
U.S. Construction Spending
US Bureau of Labor & Statistics
17
Nationally, annual construction spending has been slowing since last Fall.
Last time construction spending turned negative was September 2006.
+0.3%
-6%
5%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Con
str
uctio
n S
pe
nd
ing (
Se
aso
na
lize
d:0
00
)
US Construction Spending Jan 2012- Jan 2019
Residential (% Change) Nonresidential (% Change)
U.S. Construction Spending
US Bureau of Labor & Statistics
18
Residential construction starting to decline– for the first time since July 2006.
Nonresidential construction has bounced back from declines in 2017.
Residential Building Permits
US Census Bureau
Single-family permits had been steadily increasing– but only 50% of the peak (2006).
Market showing signs of minor weakness/declines.
19
-5%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
10,000
15,000
20,000
25,000
30,000
35,000
Pe
rce
nt C
ha
nge
(A
nn
ua
l)
Bu
ildin
g P
erm
its
Single-Family Building Permits: VirginiaJan 2010- Feb 2019
Annual % Change Annual Permits
Nonresidential Construction
McGraw-Hill Construction Forecast
Moderate growth expected in 2019, but forecasted to decline significantly in 2020.
20
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2013 2014 2015 2016 2017 2018 2019 2020
No
nre
sid
en
tia
l C
on
str
uctio
n (
00
0 s
f)
Nonresidential Construction: Virginia2013-2020
+7%
-20%
VDOT Construction Budget
VDOT
The approved FY19 VDOT Maintenance budget is expected to be 2% more than FY18
The current budget is projecting flat spending in FY20
21
$1,605
$1,456
$1,073
$1,959
$1,869 $1,891
$1,703
$0
$500
$1,000
$1,500
$2,000
$2,500
FY13 FY14 FY15 FY16 FY17 FY18 FY19
Con
str
uction B
ud
ge
t (0
00)
VDOT Construction BudgetFY13-FY19
VDOT Fuel Tax Revenue
VDOT
The approved FY19 VDOT Maintenance budget is expected to be 2% mote than FY18
The current budget is projecting flat spending in FY20
22
$819
$600
$683
$812$832
$811$840
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
FY13 FY14 FY15 FY16 FY17 FY18 FY19
Sale
s T
ax o
n M
oto
r F
uels
(00
0)
Sales Tax on Motor FuelsFY13-FY19
-20%
-15%
-10%
-5%
0%
5%
10%
US
Co
nstr
uctio
n E
mp
loym
en
t (0
00
)
National & Virginia Construction EmploymentJan 2005- Feb 2019
Virginia National
Construction Employment
US Annual Growth
:
+3.10%
VA Annual Growth
:
+0.30%
US Bureau of Labor & Statistics
Virginia’s employment growth has experienced a significant slow-down since July 2018.
Virginia construction employment growth is at it’s lowest levels since 2014.
23
Recession Probability
Political Uncertainty
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
Historical Treasury Spread:10yr vs. 3mo1981 – Mar 2019
12 Months 20 Months18 Months18 Months
Treasury Yield CurveBased on the current spread between treasuries, there’s an increased likelihood of a recession within the next 18-months.
25Federal Reserve Bank of New York
Current Spread:
0.12
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Jan
-90
Au
g-9
0
Ma
r-91
Oct-
91
May-9
2
De
c-9
2
Jul-
93
Fe
b-9
4
Se
p-9
4
Ap
r-9
5
No
v-9
5
Jun
-96
Jan-9
7
Au
g-9
7
Ma
r-98
Oct-
98
Ma
y-9
9
De
c-9
9
Jul-
00
Fe
b-0
1
Se
p-0
1
Ap
r-0
2
No
v-0
2
Jun
-03
Jan
-04
Au
g-0
4
Ma
r-05
Oct-
05
Ma
y-0
6
De
c-0
6
Jul-
07
Fe
b-0
8
Se
p-0
8
Apr-
09
No
v-0
9
Jun
-10
Jan
-11
Au
g-1
1
Ma
r-12
Oct-
12
Ma
y-1
3
Dec-1
3
Jul-
14
Fe
b-1
5
Se
p-1
5
Ap
r-1
6
No
v-1
6
Jun
-17
Jan
-18
Aug
-18
Ma
r-19
Oct-
19
Pro
babili
ty o
f R
ecessio
n
Probability of Recession within Next 12-monthsJan 1990- Mar 2020
Recession Probability
Federal Reserve Bank of New York
There is a 25% chance of a recession within the next 12 months--the highest likelihood since Jan 2006.
The chances are continuing to grow, and it’s something to keep an eye on in 2019/2020.
27% Probability
of Recession
26
Political Uncertainty
27
• Virginia is one of the top recipients of Federal
contracts, and a shutdown/sequestration could
be devastating to the state’s economy.
• Government could exceed debt limit in the fall
and might risk not paying its bills for the first
time ever.
• Sequestration could return in September,
triggering automatic cuts to all government
budgets.
• If a bipartisan agreement can’t be reached,
another government shutdown is increasingly
likely.
Federal Contracts (FY19)By Place of Performance
28
CA: $20b
TX: $18b
VA: $14b
PA: $9b
Usaspending.gov
Virginia: Most federal contracts per capita, #3 by total contract value
Economic Growth
US Bureau of Labor & Statistics
29
3.9%
5.3%
2.3%
0.8%
0.0%
0.5%
2.4%
0.6% 0.7%0.4%
0.0%
1.4%
0.6%
2.0%
3.8%
3.3%
2.7%
1.8%
-0.3%
-2.8%
2.5%
1.6%
2.3% 2.2%2.4% 2.4%
1.5%
2.3%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US & Virginia Real GDP Growth2004-2017
VA US
Sequestration
Summary
30
2019: Looks Good
• VA economy is growing steadily, and construction could be
stronger after wet 2018
• Starting to see weakening nonresidential and residential
construction growth.
2020: Transition?
• Leading indicators are pointing towards a weakening
economy
• Political forces could negatively impact VA
Questions?Contact: Scott Seaborn (sseaborn@luckcompanies.com)
31
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