THE ECONOMIC OUTLOOK FOR THE U.S.

AND THE CONSTRUCTION INDUSTRY

by

William F. Ford, Ph.D.

Weatherford Chair of Finance
Middle Tennessee State University
presented to

The Roofing Industry Alliance for Progress

at
The Four Seasons Resort and Club at Las Colinas
Irving, TX
April 24th, 2009
 THE ECONOMIC OUTLOOK
• After growing for over 6 years (since 2001) the U.S. economy has
slowed sharply (since Dec.‘07) and is now in month 17 of the recession.
• A prolonged housing downturn, subprime mortgage problems, stressed
financial industries and declining retail and auto sales trends are major
factors driving the recession.
• The economy is steadily losing jobs and the unemployment rate has
reached 8.5% this spring.
• Corporate profits are also shrinking causing investment spending to
weaken.
• Inflation has declined sharply and has temporarily become a secondary
monetary policy concern.
• The Bush Fiscal Stimulus Program ballooned the Federal deficit to $455
billion in FY 2007-2008. The Obama administration’s program might
triple this in FY 2008-’09.
• There are additional forecast risks.
• The Outlook for the construction industry is cloudy.
• Some of President Obama’s initiatives will impact the construction
industry.
3
 REAL GDP GROWTH
(Year over Year changes)
2008**
4.5 4.2% GDP: $14.26 Trillion
4.0 3.5% Real GDP: $11.65 Trillion
3.5 3.0%
3.0 2.9%
2.5
Percent Change

2.0%
2.0
1.5 1.1%
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5 -2.1%*

2003 2004 2005 2006 2007 2008 2009

*Source: W.F. Ford Associates; **BEA: 2007 current dollar GDP and real (chained 2000) dollars as of 11/25/08. 4
 REAL GDP GROWTH RATES (%)
2005 2006 2007 2008* 2009*
REAL GDP (YOY) 3.5 2.9 2.0 1.1 -2.1
Consumption 3.5 3.1 2.8 0.3 -1.3
Business Fixed Invest. 6.8 6.6 4.3 1.8 -4.5
Productivity Growth 2.3 1.0 1.4 2.8 1.6
Residential Investment 8.6 -4.6 -17.9 -20.8 -16.0
Government Purchases 0.9 1.8 2.1 2.9 3.8
Exports 6.8 8.4 8.4 6.5 -5.1
Imports 6.1 5.9 2.2 -3.3 -3.4
* * * * * * * * * * * * * * * * *
Inventory Change ($billions) $19.6 $46.3 -$3.7 -$21.1 -$52.5
*Source: W.F. Ford Associates. 5
 RESIDENTIAL CONSTRUCTION
Housing Starts

Millions of Units
Forecast*:
2.5 2009: 0.63m

2.0

1.5

1.0

0.5
1980 1984 1988 1992 1996 2000 2004 2008

*Source: W.F. Ford Associates forecast 6

 PACE OF PAYROLL GAINS
Non-farm payrolls, YOY Change
6%
Annual Average Percent Change

Forecast*:
2008: -0.9%
4%
2009: -2.1%

2%

0%

-2%

-4%
1980 1984 1988 1992 1996 2000 2004 2008

* Sources: W.F. Ford Associates forecast and BLS data. 8

 U.S. UNEMPLOYMENT RATE
U.S. Labor Force** (millions)
Employed Unemployed
2007 145.4 7.5
2008 145.3 8.9
2009 (Q1) 141.5 12.4
10% *
9.0%
9%
8%
7% *
6.0% 5.9%
6% 5.5% 5.1%
5% 4.6% 4.6%
4%
3%
2%
1%
0%
2003 2004 2005 2006 2007 2008 2009

*Sources: W.F. Ford Associates forecast and BLS data. 9

 AFTER-TAX CORPORATE PROFITS
35% 32.6%
30%
25%
Percent Change

20%
14.8% 13.9%
15% 11.8%
10%
5% 2.6%
0%
-5%
-4.0%
-10% -8.4% -10.2%*
-15%
2002 2003 2004 2005 2006 2007 2008 2009

Source: *W.F. Ford Associates forecast. 10

 FEDERAL DEFICIT
(Fiscal Year deficits)
FY FY FY FY FY FY FY
’02/’03 ’03/’04 ’04/’05 ’05/’06 ’06/’07 ’07/’08 ’08/’09 *

-$100
-$163
-$300 -$248
-$319
-$374
-$500 -$413
-$455
$ Billions

-$700

-$900

-$1,100

++
-$1,300 -$1,250

-$1,500
Source: *W.F. Ford Associates forecast; ++includes stimulus spending.
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 U.S. NET EXPORTS AND
MERCHANDISE TRADE BALANCE:
2003 2004 2005 2006 2007 2008 2009*
$0
-$100
-$200
-$300
$ Billions

-$400 -$339
-$388
-$500
-$509 -$510
-$600 -$535
-$601
-$700 -$650
-$677
-$714 -$710
-$800 -$759
-$787 -$809
-$900 -$838

Net Exports (including Services) Merchandise Trade Balance

*Sources: BEA and W.F. Ford Associates forecast. 13

 ENERGY OUTLOOK
Total Primary Energy Consumption*
1990-2025 (Quadrillion BTUs)
U.S. Japan China India Central/South America Europe
160
140 History Projection
|
120
|
100 |
Quadrillion Btu

80 |
|
60
|
40 |
20 |

0 |

1990 2000 2005 2010 2015 2020 2025

*Source: U.S. Dept. of Energy, “World Energy Outlook” (All sources: Oil, Coal, Natural Gas, Nuclear) 14
 INFLATION OUTLOOK
Mar. ’09 vs. Mar.’08**
CPI (all items): -0.4%
CPI (core items): 1.8%
PPI (finished goods): 6.7%
CPI (YOY) PCE LESS FOOD & ENERGY (YOY)
4.0
3.5 3.2% 3.8%

3.0
In fla tio n R a te (% )

2.5 2.3%

1.8%
2.0
1.2%*
1.5 The Fed’s “Comfort Zone”

1.0
0.9%*
0.5
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009
*Sources: W.F. Ford Associates and BLS; **Not seasonally adjusted 15
FED FUNDS TARGET RATE

16
 INTEREST RATE OUTLOOK
Effective Fed Funds Rate
6.0 Forecast*
10 Yr T-Note | 
5.5
|
5.0 |
4.5 |

4.0 |
|
3.5
Percent

|
3.0 | 2.5%
2.5 2.2% |

2.0 |
|
1.5
1.1% |
1.0
| 0.5%
0.5 |
0.0 |

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 | Q1 Q2 Q3 Q4
|
2005 2006 2007 2008 2009
|

* Sources: Historical data from St. Louis Fed (FRED); Forecast from William F. Ford Associates. 17
 GDP FORECAST RISKS
• Expanded Financial, Stock Market, Auto & Other
Industrial Crises?
• A Prolonged Housing/Subprime Mortgage and
Construction Loan Markets Meltdown?
• Sharper Increases in Auto, Credit Card and Home
Equity Line Delinquencies?
• Renewed U.S. Dollar Weakness?
• Stronger Negative GDP Trends in 2009?
• Resurgence of Oil Prices and Energy Costs?
• International Instability/Terror Risks?
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 2009 FIRST HALF AIA CONSENSUS
CONSTRUCTION FORECAST PANEL
McGraw-Hill Moody's Reed Business
Construction
Global Insight
Economy.com
FMI
Information
Consensus

Forecast Forecast Forecast Forecast Forecast Forecast Forecast

(% change) (% change) (% change) (% change) (% change) (% change) (% change)
2009 2009 2009 2009 2009 2009 2010
NONRESIDENTIAL TOTAL -16.6 -15.8 -7.5 -14.2 -1.9 -11.2 -5.0

Commercial Total -22.7 -15.2 -24.0 -23.3 -3.2 -17.7 -8.8

Office -18.6 -12.6 -32.9 -23.3 0.0 -17.5 -11.1
Retail/Other Commercial -23.7 -18.3 -20.1 -22.8 -11.2 -19.2 -6.6
Hotel -28.0 -15.9 -25.4 -31.9 0.1 -20.2 -12.2

Industrial Total -30.2 -10.9 -23.9 3.5 5.5 -11.2 -8.4

Institutional Total -9.6 N/A 0.2 -10.0 -1.1 -5.1 -1.9

Health -10.4 -0.1 1.6 -7.8 -1.2 -3.6 -0.9
Education -13.5 -11.5 0.2 -10.3 -1.8 -7.4 -1.9
Religious -8.8 -1.7 N/A -17.1 -10.2 -9.4 1.4
Public Saftey -4.5 N/A 0.9 -6.2 -4.1 -3.5 -1.9
Amusement/Recreation -1.8 -2.8 N/A -12.6 -6.3 -5.9 1.0

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 THE CONSTRUCTION INDUSTRY
OUTLOOK
• If this recession plays out like previous ones, there still are
significant declines ahead. In the early 1980s recession,
nonresidential construction activity fell by almost 28 percent before
growth resumed, a figure exceeded in the early 1990s recession (31
percent) and almost matched in the early 2000s downturn (25 percent).
Kermit Baker, Chief Economist, AIA Consensus Construction Forecast. 1/16/09.

• Particularly hard hit will be the commercial and industrial categories.

With many businesses seeing falling profits and difficulties in
obtaining credit, expansion plans have been put on hold until the
economic outlook improves. Institutional construction should fare
better than its commercial/industrial counterpart as the health-
care and education sectors are expected to continue to expand
through much of this downturn. Kermit Baker, Chief Economist, AIA Consensus
Construction Forecast. 1/16/09.

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 THE CONSTRUCTION INDUSTRY
OUTLOOK
• Last quarter we described the outlook for construction as “the good, the
bad and the ugly.” Now that 2008 is past, the outlook is just plain ugly.
Nonresidential construction will plummet and begin at least three years of
contraction. The bottom in terms of both dollar volume and percent
decline will not be until 2010. Residential construction is not expected to
recover until 2011. FMI’s Construction Outlook: First Quarter 2009 Report. 3/10/09.
• “2009 is going to be a tough year for the North American construction
industry.” “While no one has perfect knowledge about the future and
there are certainly serious economic issues yet to be faced, some
indicators hint that our survey may have been taken at or near an
economic low point. It’s possible that a slow recovery is underway or
is about to begin. Let’s hope so. A government stimulus package that
includes an infrastructure revitalization component could go a long
way to helping this industry.” Ron Riecks, General Manager, Wells Fargo
Construction. 1/15/09
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 OBAMA ADMINISTRATION
INITIATIVES

• Increased Infrastructure Spending

• Health Care Reforms
• Green Technology Initiatives
• Reduced Payroll Withholding Rates
• Increased Financial Market Regulations

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 WILLIAM F. FORD, PH.D.*

Professor William F. Ford holds the Weatherford Chair of Finance in the

College of Business at Middle Tennessee State University. He formerly served as
Dean of the Business School at the University of Denver; President and CEO of
the Federal Reserve Bank of Atlanta; President of First Nationwide Bank; Senior
Vice President of Wells Fargo Bank; and as Executive Director and Chief
Economist of the American Bankers Association. Dr. Ford often appears on
nationwide and regional TV and radio business news shows as an economic policy
expert and served as TeleCheck’s Senior Economic Advisor from 1990 – 2001.
He has also authored or coauthored about 100 articles in business and academic
journals, has served on the boards of six corporations, the U.S. Chamber of
Commerce and NABE, the National Association for Business Economics.
A veteran of the U.S. Navy Submarine Service, Dr. Ford earned his B.A. in
economics (summa cum laude), from the University of Texas; his M.A. and Ph.D.
degrees from the University of Michigan and is a graduate of the Senior Executive
Program at Stanford University’s Business School. He is an elected Fellow of
both the Phi Beta Kappa Society and NABE.
*Contact information: <wfford@mtsu.edu> or (615) 898-2889

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