CONEXPO-CON/AGG VIP SHOW GUIDE 2014

2014

CONEXPO-CON/AGG VIP SHOW GUIDE contains Floor Plans and a complete listing of companies exhibiting at the ConExpo-Con/Agg 2014 trade show in Las Vegas March 3-7, 2014. It also contains 2014 forecasts for the Aggregate, Concrete and Cement industries

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CONCRETE & CEMENT MARKET REPORT in the expected ROI for commercial properties. However, several issues still confront the recovery in non- residential construction. Expected ROI's will continue to be hindered by high-but-improving vacancy rates and soft-but-improving leasing rates. Commercial asset prices are expected to rise gradually with the slow easing in tight lending standards. In each instance, the conditions are improving and will add to supporting growth in nonresidential construction activity. The rate of improvement will depend on job creation, which either directly or indirectly, translates into higher occupancy and leasing rates. Combined, these factors determine the expected ROI for most commercial properties. An improvement in office construction, for example, occurs only after job creation is strong enough to improve occupancy rates and reduce vacancy rates. Given sustained job creation and a lowering of vacancy rates, the leasing rates will first stabilize and then improve. Only when both conditions are present—declining vacancy rates and improving leasing rates—will expected increases in commercial construction activity materialize. Nearly 7.5 million jobs have been created since the economic collapse. PCA expects 2.2 million additional jobs will be created in 2014 and an additional 10.3 million new jobs will be created by the end of the forecast horizon (2018). Such growth sends a signal to investors that there is a need for commercial expansion. The rate of improvement will vary widely among regions in the United States. This growth also sends a signal to banks that the risks asso- ciated with loans to commercial real estate are declining as the economy gains traction. The commercial real estate market has been plagued with refinancing issues and tight lending standards. According to the Federal Reserve's senior loan officer survey, the lending standards facing commercial real estate loans have eased significantly, reflecting 10 consecutive quarters of decline. This adds to the fundamentals facing commercial construction. Public Works on the Mend As the economy gains momentum, job gains will add strength to states' ability to spend, and rising home prices will eventually support stronger construction spending at the local level as well. Still, both these conditions need some time to brew before result- ing in a significant positive impact on public spending. Roadway construction accounts for the largest area of public cement consumption. While this sector has suffered difficulties, PCA believes a trough point was reached in 2013. Growth, enabled by improving state finances and Transportation Infrastructure Finance and Innovation Act (TIFIA) spending is expected to push this sector to record successive gains during the back end of the forecast horizon. The expected growth in road construction is not tied to a new robust highway bill. In terms of highway spending, MAP-21 (Moving Ahead for Progress in the 21st Century) allows for a 1.5 percent increase for inflation in fiscal 2014. Thereafter, PCA holds nominal spending constant through 2018, although inflation is expected to gradu- ally reduce the potency in each successive year in the forecast. A new highway bill, funded at higher levels, would imply upside risks to the association's forecast. According to PCA's scenario, roadway construction is tied to a recovery in state and local finances. State revenue collections have been increasing in tandem with job creation. PCA expects 2.2 million jobs will be created in 2014, 2.4 million in 2015, and even stronger job growth through 2018. This suggests continued strong growth in state revenue collections and an eventual return to surpluses by fiscal 2015. With this, PCA expects an increase in state spending. Although discretionary state construction spending was hit hard during the recession, during the 10 years preceding the economic down- turn, state highway/road construction discretionary spending accounted for roughly 2.4 percent of total state expenditures. Cutbacks in state discretionary highway/roads spending account- ed for only 2.1 percent in 2008, 1.9 percent in 2009, and 1.8 percent in 2010. PCA expects the share of state spending dedicat- ed to road construction will increase once state fiscal conditions turn to surpluses. According to PCA's forecast, the share rises to nearly 2.0 per- cent. This increase in spending share is mindful of competing state spending priorities, but also recognizes that infrastructure spending has been neglected during the downturn and the poten- tial of pent-up demand that has been generated. The combina- tion of stronger fiscal conditions and the potential of a gradu- al increase in emphasis on infrastructure spending within state budgets implies stronger state spending. Furthermore, the MAP-21 highway bill reinforces the like- lihood that state and local spending will increase significantly during the forecast horizon. According to the new highway bill, a 10-fold increase in funding of TIFIA is planned. Compared to fis- cal 2012 funding levels of $122 million, TIFIA funding increased to $750 million in fiscal 2013 and should reach $1 billion in 2014. These increases provide greater ability for state and local govern- ments to finance large-scale construction projects. Finally, PCA expects an increase in local spending on public construction beginning in fiscal 2016. While localities receive state and other funding, roughly 75 percent of tax revenues are based from property taxes. Unfortunately, property values declined dramatically during 2006-2011, thereby reducing local budgets and construction spending. Using local employment as a proxy for local spending activi- ty and home prices as a proxy for property taxes, PCA estimates there is a three-year lag between changes in home prices and VIP Show Guide March 2014 • 39 U854.indd 39 2/14/14 12:11 PM

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