Construction Barometer™ > Previous Quarters Results > News Release - 2nd Quarter 2006

For 2nd quarter 2006, the Carolinas AGC Construction Barometer ä dropped slightly from 1 st quarter. Though business conditions were similar, contrac to rs had slightly stronger expectations that industry growth will slow in 2007, dropping the Barometer's aggregate score down 1%, with the quantitative indica to rs declining 2.5% and the qualitative measures falling 0.5%. The larger quantitative drop was led by a 3.5% drop in Employment & Labor Market conditions, while the slight qualitative drop was driven by a 5.3% dip in Business & Economic conditions in the Carolinas construction industry.

The deterioration in Employment & Labor Market conditions was entirely attributable to falling contrac to r demand for skilled labor. Contrac to r panelists reported no tightening in regional labor market conditions, only modest upward pressure on construction industry wage rates, and a slightly weaker appetite for increased hiring. A slight drop in the number of new positions available was reported, driven by stronger expectations that industry growth will soften in the coming year.

Consistent with these expectations, contrac to rs reported a small drop in heavy equipment purchases and commercial loan approval rates in 2nd quarter. Both market interest rates and commercial construction costs remained relatively stable, with few panelists reporting increased financing costs or unexpected increases in materials costs.

Strong Employment & Labor Market conditions (up 6%) offset weaker Business conditions (down 5.3%) almost exactly. A reduced demand for new workers resulted in easier hiring conditions for skilled construction labor, which helped moderate the rate of construction wage inflation. Contrac to rs expect both stable wages and limited job growth to continue well in to 2007. Business & Economic trends showed slower business growth for 2 nd quarter and increased expectations that construction growth will slow in the 2007 season.

Slower industry growth translated in to slightly weaker demand for construction materials, and weaker demand translated in to few unexpected price increase-- and even a few price decreases-- for the quarter. Contrac to rs also reported virtually no supply chain disruptions and materials shortages for the quarter. Good news is that both these trends-- ready materials availability and stable construction materials costs-- are expected to continue in to 2007.

Finally, credit market conditions remained largely unchanged from the previous quarter, with widespread availability of both short-term money and longer-term equipment financing. Contrac to rs did report a modest increase in the cost of long-term financing arrangements, as variable rate loans acquired over the past few years began to reprice at higher interest rates. In coming months, however, market rates are not expected to change appreciably from current levels, and 2007 borrowing rates are expected to trend slightly lower from current levels.

State vs. State Comparison:

NC Down 0.3%; SC Down 2.3%

Both North and South Carolina posted modest drops in 2 nd quarter Barometer scores. Tighter labor market conditions was the major reason for the sharper drop in SC, while NC contrac to rs reported greater labor availability on the heels of reduced labor demand. Consistent with this trend difference, NC contrac to rs reported falling wage rates, while contrac to rs to the south reported higher wages. Labor market expectations for 2007 were sharply different across the 2 states as well; NC contrac to rs expect stable wages and widespread labor availability in 2007, while SC contrac to rs expect continuing labor shortages and slightly higher wage rates to materialize by mid-year.

Elsewhere across the Barometer's business metrics, industry conditions in the 2 Carolinas were quite similar. Contrac to rs in both states reported modestly slower activity in 2 nd quarter, and similar expectations concerning slower rates of industry growth in 2007. Both states reported stable or falling construction materials costs, modest increases in construction equipment costs, and reduced demand for capital equipment and the long-term debt financing necessary to support it. Highway and utility spending i n NC declined modestly for the quarter while remaining unchanged in SC from levels observed earlier in the year.

Regional Economic Highlights

Heartland NC: Continuing Labor Market Strength (Down 0.4%)

Heartland NC showed very little deterioration in business activity, virtually no reduction in anticipated hiring plans, and sharply stronger labor market conditions for 2 nd quarter. This strength in business volume led regional contrac to rs to continue with hiring plans originally developed earlier in the year, while the widespread availability of labor helped to fill new skilled positions at reasonable cost. Contrac to rs reported a slight drop in materials costs, a slight increase in heavy equipment costs, and a slight dip in industry wages. Looking forward to 2007, Heartland contrac to rs expect slightly slower business growth, yet at a smaller rate of decrease than any other region. There's also an expectation of stable materials costs and good labor availability. Given the size of the Heartland region and the volume of construction activity occurring, it's likely this area will be the strongest of all Carolinas regions in 2007.

Eastern NC: Reduction in Planned Construction (ENC Down 1.1%;)

Though Eastern NC experienced a slight drop in Barometer scores, contrac to rs reported much more stable business conditions than their neighbors to the west. Eastern contrac to rs reported a significant reduction in planned construction hiring for 2007; but consistent with the divergent labor market trends, contrac to rs also reported rising labor availability and stable wage rates. For the coming year, contrac to rs in the East expect stable labor availability rates and only modest increase in wage rates. Construction materials costs in the region are expected to moderate in 2007 on weakening commercial construction activity.

Western NC: Activity Slows, but Only for the Moment (WNC Down 4.0%)

Western North Carolina contrac to rs reported a sharp drop in construction business activity for 2 nd quarter 2006. The sharp downturn in the region appears to be a temporary business setback however, as contrac to rs anticipate significantly stronger business conditions in 2007. Consistent with optimistic expectations for the coming year, Western contrac to rs reported no decrease in the number of positions available. Tighter labor market conditions and somewhat higher regional labor costs were reported for the quarter, although the near future will bring stabilized labor availability rates and wage rates. Materials costs in the West are expected to increase with the accelerated business activity anticipated in 2007.

Upstate SC: Slower Growth Ahead (USC Down 3.2%)

While South Carolina overall experienced a downturn in the number of new construction positions available, the diminished labor demand in the Upstate region follows from slower business activity that is expected to continue in to 2007. Contrac to rs preparing for slower growth in coming months report they are also buying less capital equipment and seeking less new credit from regional bankers. Rising materials costs and equipment prices were reported in the region, though there are expectations for costs to stabilize in the coming year. Upstate contrac to rs report no change in the availability of commercial credit from last quarter.

Lowcountry SC: Stable Activity for Now (LSC Up 0.1%)

Unlike their neighbors to the north, Lowcountry contrac to rs reported stable levels of business activity in 2 nd quarter. This stability is expected to give way to slower industry growth in 2007, although not nearly as slow as the rest of the state. Just as in the Upstate though, Lowcountry contrac to rs reportedly are buying less capital equipment, recruiting fewer new workers, and seeking less new credit. Falling materials costs and stable equipment prices were another fortunate report out of the Lowcountry, and are expected to remain on that positive note in to 2007. Interestingly, Lowcountry contrac to rs reported tightening credit market conditions, with more limited availability of both short- and long-term loans— a contrast to the rest of South Carolina and all of North Carolina.

For a more detailed look at the Carolinas AGC Construction Barometer ä results for Quarter 2, 2006 visit www.cagc.org , Construction Market Stats. To participate as a Construction Barometer panelist, contact Lori Tharp at 704/372-1450 ext. 5227 or ltharp@carolinasagc.org.

For more in-depth analysis visit www.cagc.org and click Construction Market Stats.