Construction Barometer™ > Previous Results > News Release - 2nd Quarter

Editor's Note: For more information: Tony Plath, UNC-Charlotte associate professor of finance, 704/687-4413 . For names of contractor panelists in your area: Lori Tharp, Carolinas AGC 704/372-1450, ext. 5227; ltharp@carolinasagc.org. For background information on the Barometer and Carolinas AGC (Associated General Contractors): www.cagc.org .

CHARLOTTE, NC –January, 2005 - The Carolinas AGC Construction Barometer™ posted a 0.6% quarterly increase (to 2.94 on a scale of 1 to 5) for mid-year 2004. This seemingly modest gain is bolstered by spikes in specific segments of the Barometer, indicating that the industry is at last gaining increased business momentum.

In particular, contractors in virtually all regions of the Carolinas report significantly stronger business conditions and the expectation that economic recovery will indeed continue. Barometer data reflected a 6.3% rise in the Employment & Labor Market Trends and a 4.4% improvement in the Financing Availability segment. Contractors throughout the Carolinas reported increased labor availability and easier financing conditions as the dominant factors leading to improved business conditions.

On the quantitative side of the Barometer, the Business & Economic Trends statistic deteriorated 4.9% for the quarter, almost entirely attributable to continuing materials cost inflation that has plagued the nationwide construction industry the last several months. Though higher materials costs are expected to continue, contractor panelists believe the worst round of cost inflation is over.

Weak Carolinas labor markets, evident in the 1.5% drop in the Employment & Labor Markets segment on the quantitative side of the index, increased labor supply for construction. However, contractors reported only a modest appetite for adding new employees to the payroll.

One clear indicator that the business outlook for commercial construction is improving is that contractors reported increasing interest from their bankers, particularly for long-term equipment loans and real estate financing. Modest increases in short-term interest rates have had very little impact on borrowing plans of commercial contractors, while decreased long-term rates led a few contractors to increase borrowing in anticipation of increased business activity.

NC and SC data similar except in Borrowing Trends between

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(NC up 1.1% to 2.93; SC down 0.5% to 2.95)

Barometer readings for the Carolinas differed between North and South Carolina primarily due to divergent construction industry borrowing trends. NC contractors reported a modest increase in commercial borrowing for the quarter, while SC contractors reduced their borrowing activity. This difference is most likely a consequence of the timing of contractor borrowing, since in the previous quarter,

SC contractors had reported an uptick in borrowing activity, while NC contractors reported no change. In the second quarter, this trend reversed. Excluding this minor difference in borrowing trends, the states posted similar Barometer scores for the second quarter.

Regional Economic Highlights

Heartland NC: Rising Business Activity Brings Rising Business Costs

(Up 0.3% to 2.94)

Rising materials costs dominated the Heartland's regional statistics for the quarter, sending the Business & Economic Trends segment on the quantitative side of the Barometer down a substantial 6.6%. Even the presence of easier labor market conditions, stable construction labor costs, and accommodating business bankers could not overcome the negative impact of rising construction materials costs, leaving Heartland's Barometer score virtually unchanged from the previous quarter despite a host of favorable economic news in the region.

Commercial Construction Activity Strengthens in Eastern NC

Business conditions in Eastern North Carolina region advanced a substantial 6.5% to 2.97 on the Barometer . Job growth rose significantly at mid-year, and contractors reported expectations of more favorable business conditions.

Barometer Weakens in the West Western NC

Western North Carolina indicators fell by a significant 5.3% to 2.77, and the number of construction industry positions anticipated by regional contractors falling substantially in the West. Diminished construction industry hiring plans in Western NC follow from a substantial reduction in contractor optimism regarding future business conditions. Contractors in the West reported significantly weaker business conditions in commercial construction, and unlike the other 2 North Carolina Barometer regions, Western contractors anticipated weaker business conditions may last into 2005.

Upstate and Lowcountry SC: Regional Construction Industry Differences

(Upstate SC - down 0.2% to 2.98 ; Lowcountry SC - down 1.5% to 2.86)

Differences in regional Barometer scores across the South Carolina regions mirror regional differences in North Carolina Barometer rankings, with Upstate SC resembling Heartland NC and the Lowcountry looking a lot like Western NC. Both the Lowcountry and the Western North Carolina region experienced an increase in the general rate of unemployment and diminished construction industry business activity in the second quarter, while Upstate SC and Heartland NC region experienced far smaller changes in unemployment and business activity. This is perhaps attributable to the urban character of both the Upstate and Heartland regions, and the far more rural character of the Lowcountry and Western NC regions. Economic recovery—and commercial construction industry business volume—remain far stronger in the urban regions of the Carolinas, while the more rural areas of both states continue to suffer the lingering effects of economic recession and structural economic change.

Editor's Note: For more information: Tony Plath, UNC-Charlotte associate professor of finance, 704/687-4413 .

For names of contractor panelists in your area: Lori Tharp, Carolinas AGC 704/372-1450, ext. 5227; ltharp@carolinasagc.org. For background information on the Barometer and Carolinas AGC (Associated General Contractors): www.cagc.org