May 7, 2014

2016 Economic and

Construction Outlook

Presented by:

Bernard M. Markstein, Ph.D.

Markstein Advisors

Automated Logic Open House

Harrisburg PA

September 30, 2016

Markstein Advisors2

The U.S.

Economy

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Economy growing, but should be better

Employment growing, but should be faster

Inflation remains moderate (too low?)

Federal Reserve raising interest rates: how high,

how fast?

Strong dollar: pluses & minuses

Energy (oil) prices

Overview of the Economy

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Washington less of an obstacle, but how much real

cooperation are we seeing?

China: slow(er) economic growth impact on world

economy

Europe showing signs of improvement but total

impact of Brexit is an unknown

Overview of the Economy

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Risks to the Economy

Failure to pass needed legislation leads to reduced

federal government spending/shut down

The election

China

EU – Brexit?

Energy (oil) prices

Interest rates (the Fed)

European government debt default (Greece)

The euro (Greece)

Russia?

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Construction

Overview

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47%

32%

20%

2002

Residential

Nonresidential Building

Heavy Construction

53%

29%

18%

2006

Residential

Nonresidential Building

Heavy Construction

2002 Total - $848 Billion 2006 Total - $1,167 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of Construction

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53%

29%

18%

2006

Residential

Nonresidential Building

Heavy Construction

31%

36%

33%

2010

Residential

Nonresidential Building

Heavy Construction

2006 Total - $1,167 Billion 2010 Total - $809 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of Construction

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53%

29%

18%

2006

Residential

Nonresidential Building

Heavy Construction

40%

34%

26%

2015

Residential

Nonresidential Building

Heavy Construction

2006 Total - $1,167 Billion 2015 Total - $1,112 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of Construction

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47%

32%

20%

2002

Residential

Nonresidential Building

Heavy Construction

40%

34%

26%

2015

Residential

Nonresidential Building

Heavy Construction

2002 Total - $848 Billion 2015 Total - $1,112 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of Construction

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0

200

400

600

800

1,000

1,200

1,400

1,600

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Residential Nonresidential Building Heavy Construction

$ Billions

History

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Forecast

Forecast: The Rebound ContinuesConstruction Spending and its Components

Overview of Construction

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Residential

Construction

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0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(1.4 million starts per year)

Nation’s long-run (trend)

need for the next decade

High Estimate

(1.8 million starts per year)

1.18 million

Total Housing Starts(3-Month Moving Average)

Source: U.S. Census Bureau

Shaded areas represent recession

Overview of Housing

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0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(250,000 starts per year)

Nation’s long-run (trend)

need for the next decade

High Estimate

(350,000 starts per year)

432k

Multifamily Housing Starts(3-Month Moving Average)

Source: U.S. Census Bureau

Shaded areas represent recession

Overview of Housing

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0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(1.15 million starts per year)

Nation’s long-run (trend)

need for the next decade

High Estimate

(1.45 million starts per year)

751k

Single-Family Housing Starts(3-Month Moving Average)

Source: U.S. Census Bureau

Shaded areas represent recession

Overview of Housing

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402

451

538

618 620

500

367

256 252 253276

329

375

440

471

537

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

$ Billions

History Forecast

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Residential Construction Spending

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0

50

100

150

200

250

300

350

400

450

Single-Family Multifamily Improvements

$ Billions

2006 to 2015 ’16 ’17

Residential Construction Spending

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

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Nonresidential

Building

Construction

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275 269283

302

340

404

439

377

292284

301 303

333

379

405426

0

50

100

150

200

250

300

350

400

450

500

550

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

$ Billions

History Forecast

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Nonresidential Construction Spending

Nonresidential Construction

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0

10

20

30

40

50

60

70

80

90

100

110

120

Hotel/Lodging Office Commercial

$ Billions

2006 to 2015 ’16 ’17

Nonresidential Construction Spending

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Nonresidential Construction

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0

10

20

30

40

50

60

70

80

90

100

110

120

Manufacturing Healthcare Education

$ Billions

2006 to 2015 ’16 ’17

Nonresidential Construction Spending

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Nonresidential Construction

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Heavy Engineering

Construction

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171 171 169185

208

248

272 274265

251

274 274

298 294 296

312

0

50

100

150

200

250

300

350

400

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

$ Billions

History Forecast

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Heavy Engineering Construction Spending

Heavy Engineering Construction

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Contact Info and Links

Bernard M. Markstein

Office: 301-588-5190

bmarkstein@verizon.net

LinkedIn

www.linkedin.com/in/markstein3

Twitter

@BMarkstein