Construction Barometer™ > Previous Results > News Release - 2nd Quarter 2007

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

COMMERCIAL CONSTRUCTION LABOR MARKET EASES

November 2007 – Charlotte, NC- In an unusual turn of events, the Carolinas AGC Construction Barometerä fell 1.4% in Quarter 2, 2007 on deteriorating financial market conditions offset by an improvement in construction labor market conditions.

Unexpectedly, contractors reported easier hiring conditions, a growing supply of qualified workers, and stable wage rates for skilled labor. These improved conditions are anticipated to continue well into 2008. Continuing job losses in residential construction are providing a labor market safety valve to the red-hot need for commercial construction workers.

In another unexpected turn, contractors noted that long-term interest rates for construction financing were sharply higher in 2nd quarter-- but this increase was not met with a similar increase in short-term interest rates on lines of credit, etc. Moreover, contractors reported very little deterioration in demand for credit, and modestly stronger planned expenditures for new construction equipment. The combination of improved labor conditions and deteriorating financial conditions drove the composite Barometer score downward by a slight 1.4%.

Contractor panelist optimism prevails that business conditions will continue well into 2008; excluding the sharp drop in financial market conditions, there’s virtually no bad news to report. Materials and equipment costs remain stable with the exception of oil prices, and there’s confidence that the spike in materials and equipment costs experienced in 2005 and 2006 will not reoccur in the next several quarters.

Finally, panelists report that they expect slightly slower business growth in 2008, yet more predictable demand for new construction projects. At the same time, private spending on commercial projects is expected to decline only modestly in 2008, leading to less stressful growth in total business activity and a predictable business environment for the coming year.

State vs. State: Similar Business Trends (NC down 1.1%; SC down 2.1%)
Both North and South Carolina contractors report that improving labor market conditions, stable industry wage rates, stable materials and equipment costs will be the continuing trend into 2008. The point of greatest disagreement between contractors in each state is in regard to construction activity in 2008. NC contractors expect significantly stronger business conditions to develop in the coming year, while South Carolina contractors report rising expectations of weaker growth. Both states show ready availability of financing sources, and both report significantly higher borrowing costs on long-term funding arrangements. While both states expect stable borrowing costs from this point forward, NC contractors anticipate generally tighter credit market conditions than contractors in SC.

Regional Economic Highlights  

Heartland NC: Good and Bad News... Down 0.4%
Good news for the quarter included significantly stronger labor market conditions, with more skilled labor, stable wages, and expectations that this trend will continue. Contractors also reported widespread expectations that business conditions will strengthen with more stable and predictable growth, and little increase in equipment and materials costs. Bad news is that while contractors expect financing costs to remain at current levels for the rest of the year, they report rising expectations that financing conditions will tighten in 2008.

Western NC: Storm After the Calm… Down 5.1%
Early in 2007, contractors in Western North Carolina reported strengthened business conditions; not so in 2nd quarter when conditions fell sharply lower. Western contractors reported falling business activity, rising construction materials costs, and a reduction in planned hiring activity for the remaining months of 2007. Interestingly, Western contractors reported no change in commercial credit availability and no increase in commercial loan rates.

Eastern NC: A Positive Reversal from 1st Quarter… Down 1.8%
Eastern North Carolina contractors reported sharply stronger business conditions in 2nd quarter, a reversal from first quarter. Unlike other regions, Eastern NC experienced increased business activity in second quarter, falling materials and equipment costs, and no change in the number of new available construction positions. In fact, the Barometerä for Eastern NC showed gains in practically all categories—except financing conditions. A greater difficulty in obtaining long-term financing for construction equipment and rising borrowing costs is the trend in the eastern region, along with a growing expectation that financial market conditions will continue to deteriorate into the near future.

South Carolina: Surging Labor Supply; Weakening Labor Demand
Upstate down 1.0%; Lowcountry down 4.5%

Nowhere in the Carolinas construction industry are the colliding trends between the commercial and residential sectors more apparent than in Upstate South Carolina. Surging supply of new construction workers migrating, or at least attempting to migrate, from residential to commercial jobs is being met with significantly lower demand for new workers, sending prevailing wage rates in commercial construction sharply lower. Reduced demand for new workers coupled with sharply increasing labor supply worked to offset one another within the region.

The Lowcountry experienced similar labor market trends in 2nd quarter, but the magnitude of change was much smaller. Perhaps residential construction workers seeking commercial jobs are avoiding the Lowcountry since contractors also reported a big drop in new construction projects coming down the pipe. A similar reduction is projected for the Upstate in 2008, but with a much smaller magnitude of change.

For a more detailed look at the Carolinas AGC Construction Barometer™ results for Quarter 2, 2007 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.