Construction Barometer™ > Previous Quarters Results > News Release - 2nd Quarter 2005

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 ; www.cagc.org

BLUE SKIES AND CLEAR SAILING...THEN CAME KATRINA

The Carolinas AGC Construction Barometer™ rose 1.5% in second quarter 2005, and never before has good news meant so little to contractors. Before Hurricanes Katrina and Rita struck, just about every business and financial indicator monitored by the Barometer pointed upward, and future business conditions were almost perfect.

In a rare junction, all three categories of hard data economic indicators (Employment & Labor Trends, Business & Economic Conditions, and Financing Availability) pointed upward. In the Barometer’s subjective series, Carolinas contractors were looking forward to gently rising sales, stable business conditions and labor costs, and
relatively predictable materials and equipment cost increases.

Things simply couldn’t have looked much better in the commercial construction industry. Then Katrina, Rita and Wilma struck.

Taking Stock of the Economic Impact

The resulting uncertainty for the Carolinas construction industry has been unsettling, to say the least. Carolinas AGC members, however, have a double competitive advantage: the insights of National AGC’s Chief Economist Ken Simonson, and of our local economic analyst partner Dr. Tony Plath of UNCC.

National Perspective:

There are signs that the effects of the 2005 hurricane season, the first to exhaust the alphabet of storm names, will be somewhat contained:

• A report commissioned by AIA — “The Economic and Construction Outlook in the Gulf States after Hurricane Katrina” — predicts “some jumps in lumber and plywood/[oriented strand board] prices… There are reports of wallboard supplies being placed under allocation in some parts of the country. Other short-term dislocations in materials prices and availability are likely to occur until building product manufacturing and distribution facilities in the region are fully functional….However, over the longer term, the [e]ffect of Hurricane Katrina on building materials prices— even commodity building products—should be fairly well contained. Between now and the end of 2006, price increases are expected to be in the 3-4% range with the exception of gypsum products and cement [, which] are expected to see further increases in the 7% range by the end of next year.” Because the report was prepared before Rita, price effects may be higher now.
  
• Industrial production at mines, utilities, and factories sank 1.3% in September (mines include oil and gas wells, and factories include refineries and gas processing plants.)
  
• The first measure of the impact of Katrina and Rita on the consumer price index (CPI), reflected in the Oct. 14 report from the Bureau of Labor Statistics (BLS), showed the CPI for all urban consumers (CPI-U) leapt 1.2%, its largest one-month jump in 25 years, propelled by a 12% increase in energy costs. The CPI-U rose 4.7% over the past 12 months. But the “core” CPI-U, which omits energy and food costs, rose just 0.1% for the 5th straight month, and was only 2.0% higher than in September 2004. In other words, the storms at that point did not yet seem to be affecting non-energy consumer prices. The CPI for urban wage earners and clerical workers, used to adjust wage rates in many construction and other union contracts, rose 5.2% over 12 months.
  
• The Bureau of Labor Statistics (BLS) reported in late October that the producer price index (PPI) for finished goods catapulted 1.9% (seasonally adjusted) in September. Prices reflected the first impacts of Hurricane Katrina, but not Hurricane Rita. The PPI for energy jumped 7.1%. The “core” index, which excludes energy and food, rose 0.3%, compared to 0 in August and 0.4% in July. Over the past 12 months, the finished-goods PPI rose 6.9% but the core index went up just 2.6%.
  
  The PPI for materials and components for construction climbed 1.1% for the month but only 3.6% for the 12-month period. The overall increase was held down by an 8.5% drop in lumber prices, which affect mainly residential building. The 12-month gain in the PPI for multi-unit residential was 7.2%; nonresidential buildings, 7.6%; highway and street construction, 16%; other heavy construction, 9.2%. Among important inputs, the 12-month rise in the PPI for diesel fuel was 51%; copper and brass mill shapes, 19%; asphalt, 15%; gypsum products and nonferrous pipe, tube, and fittings, 13% each; and ready-mixed concrete and cement, 12% each. PPIs for various steel products showed small increases or decreases.
  
  Building permits, usually a reliable indicator of near-term starts, rose 2.4% from August and 7.4% from September 2004.
  
• On availability of materials and feedstocks: the Interior Department’s Minerals Management Service reported in mid-October that 67% of the crude oil production and 56% of the natural gas production in the Gulf of Mexico remained shut in. Even higher percentages of oil and gas in Louisiana’s offshore waters remained shut in, and most ntrastate offshore pipelines were not operating. Both oil and gas are important feedstocks and heat sources for a variety of construction materials, such as asphalt, roofing materials, insulation, membranes, paints and coatings, plastic fittings and components, and polyvinyl chloride (PVC) pipe.

Contractors nationwide have reported severe shortages of PVC pipe, and price increases of 20-100%. Some contractors have reported a shortage of truck drivers to haul construction equipment, because many drivers and rigs are bringing construction, demolition, and debris-removal equipment to the hurricane zones. Several tire makers warned that they would not be able to supply all customers because Katrina had interrupted production or imports of natural rubber and carbon black, a petroleum product; tires for offroad construction equipment had already been in short supply for months.

Did You Know that members can get free weekly economic updates prepared by AGC of America’s own Chief Economist? The Data DIGest is a one-page e-mailed summary of the week’s economy news, plus implications for construction segments, prepared by AGC’s Chief Economist, Ken Simonson. Sign up for this at www.agc.org; under Quick Links, select Construction Economics.