Trend in Rising Construction Activity Continues
June 6th, 2007 - Posted in General NewsThe most recent Carolinas AGC Construction Barometer(TM) again posted a gain, showing continuing positive momentum on rising construction activity. The 0.7% rise is attributable to strengthening economic indicators released in March for 4th quarter 2006; business impressions provided by the Barometer’s contractor panelists during 1st quarter 2007 maintained their positive values.
In the Barometer(TM)’s Quantitative series, the largest construction activity gains occurred in the Lowcountry SC and Western NC regions, while activity declined somewhat in Upstate SC and Eastern NC; business volume in the NC Heartland remained unchanged. Unemployment fell modestly due to new positions becoming available while expectations heightened for new business growth.
Qualitative indicators showed Business & Economic conditions advancing 1.3% and Financing Availability trends rising 0.1%. While contractors reported they anticipate growing labor shortages and rising wages beginning in summer, they anticipate more predictable and manageable rising materials prices throughout the year.
Overall, contractors reported strengthening business activity, rising expectations that 2007 will turn out to be a better year for business than 2006, stable (or at least predictable) construction materials costs, falling construction equipment costs, and slightly better availability of both short- and long-term credit.
In spite of strong credit availability and stable interest rates, contractors reported little need for new financing. Interestingly, the collapse in residential construction activity observed across much of the US is having virtually no impact on lender attitudes for commercial contractor borrowing requests, indicating that lenders perceive the downturn in construction activity to be confined entirely to the residential segment of the market.
State vs. State: Gains in Both States, Stronger in SC (NC up 0.3%; SC up 1.6%)
Both North and South Carolina posted gains, but the rate of increase was significantly stronger in SC (up 1.6%) than in NC (up 0.3%). The difference is found on the Barometer’s Qualitative side, where SC contractors reported a 2.5% gain while NC contractors reported a 0.9% drop. The single factor accounting for most of this difference was the labor market: NC contractors reported significantly tighter labor conditions to emerge in the next several months, while SC contractors remained optimistic that the widespread availability of skilled labor and stable wage rates will continue throughout 2007. Interestingly, while contractors in NC expect tighter labor market conditions at mid-year 2007, they don’t expect a significant increase in skilled labor costs.
Contractors perceived that construction conditions in NC are strengthening at a slower pace than in SC. The Business Economic trends segment rose 1.1% in NC, and 1.8% in SC. In addition to the Lowcountry’s rising activity, SC contractors cited sharply falling materials and equipment costs as the primary reasons for an improving business climate. NC contractors reported stable, but not falling, costs.
Credit market conditions appear to be taking a slightly different path; SC contractors reported a significant increase in the availability of both short- and long-term credit, while NC contractors noted very little change. In spite of this difference, lenders continue to regard new contractor borrowing requests favorably in both states, recognizing the health and vitality of the region’s construction industry.
Regional Economic Highlights Heartland NC: Springtime Business As Usual (Unchanged)
While NC’s Heartland region reported no change in its Barometer value, it’s important not to oversimplify a few important emerging trends in the region: the Heartland displays the typical early spring pattern of rising business volume, growing demand for construction labor, and increased contractor optimism for 2007. These trends are each reflected in the Barometer’s Business & Economic conditions measure, which improved 3.2% — only to be offset by a 4.7% deterioration in Employment Labor Market trends. While labor shortages are unlikely to drive construction wages significantly higher, they are dampening contractor optimism regarding general business conditions in the Heartland for 2007.
Eastern NC and Western NC: Divergent Business Trends… (ENC - Down 0.9%, WNC - Up 5.5%)
Business conditions in the extreme regions of North Carolina were very different. Down East, the Barometer slipped by 0.9%, while in the West it advanced 5.5%. In an unusual turn of events, just about every business indicator pointed in opposite directions across these 2 NC regions. In the East, the Employment & Labor Market trends fell 2.9%; while in the West, employment conditions improved a whopping 12.7%. Eastern contractors reported a reduced rate of business expansion projected for early 2007, while western contractors reported just the opposite.
While materials costs seem to be rising for eastern contractors, their neighbors to the west reported falling costs and equipment prices. Eastern contractors reported a slight drop in highway and utility spending, while the West reported more modest gains. Both saw an uptick in the Qualitative Business & Economic trends. Despite falling economic indicators in the East, contractors in the region joined with their Western counterparts in projecting stronger construction activity throughout 2007.
Upstate and Lowcountry SC: Did All the Skilled Workers Move to the Beach? (USC - Down 1.1%, LSC - Up 8.6%)
Barometer scores across both SC regions were markedly different, with the Upstate falling 1.1% while the Lowcountry rose 8.6%. This difference is almost entirely explained by widely divergent labor market conditions. Upstate contractors reported a big drop in Employment & Labor Market trends (down 5.6%), attributable to a general tightening in the skilled labor market. Lowcountry contractors reported precisely the opposite trend, with a whopping 37.8% increase. In the Lowcountry, panelists reported a much greater supply of available skilled labor, falling labor costs, and increasing expectations that easier labor market conditions will characterize the industry for the duration of 2007. It’s almost as if all of the skilled workers in South Carolina moved to the coast around Thanksgiving.
While both regions experienced a modest increase in Business & Economic conditions, the rate of change was more substantial in the Lowcountry (up 3.7%) than the Upstate (up 1.1%). While Upstate contractors reported rising business activity and strengthened expectations that 2007 will be a stronger year than 2006, their Lowcountry neighbors reported declining business activity for 2007. Falling construction materials costs and equipment prices accounted for a source of good news in the Lowcountry’s Business and Economic trends variable, leading to the 3.7% gain in this segment of the Barometer.
Carolinas AGC builds its 3000 members’ businesses through workforce development, business development, profit management, and CompTrust AGC — a self-insured workers’ compensation trust for members. More than 75% of commercial and industrial construction (buildings, highways/bridges, utility facilities) in both North and South Carolina is performed or supported by CAGC members.
For more in-depth analysis visit http://www.cagc.org/ and see Construction Market Stats.
For additional information or names of local panelists contact: Lori Tharp, Associate Dir., Business Development, Carolinas AGC (704) 372-1450, ext. 5227; ltharp@carolinasagc.org; http://www.cagc.org/ Carolinas Associated General Contractors
CONTACT: Lori Tharp, Associate Director of Business Development, of
Carolinas AGC, +1-704-372-1450 ext. 5227, ltharp@carolinasagc.org
Web site: http://www.cagc.org/