Construction Barometer™ > Previous Quarters Results > News Release - 2nd Quarter 2008

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

NO SURPRISE IN BARAMOTER'S FALL (DOWN 1.2%)

December 2008 – Charlotte , NC- The Carolinas AGC Construction Barometer™ posted a1.2% decline in 2nd quarter 2008, setting a record at 2.74 for the 2nd lowest Barometer score in its 10-year history. Before the Barometer starts rising again, it’s likely we’ll see the index fall to its lowest score on record. More importantly, in 2009 the Barometer will likely remain depressed for several quarters and only begin rising again toward mid-year in 2010. It’ll be a longer, deeper national recession than we experienced in 2000-01.

The pain in the Barometer’s numbers is uniformly shared across the Qualitative and Quantitative indicators, with the Quantitative side falling 2.2%, while the more forward-looking Qualitative indicators dropped 1.6%. No surprise that all 3 Barometer categories-- Employment, Business Trends and Financing Availability-- are also down.

The largest drop on the Barometer’s Quantitative side reflects the labor market’s rapid deterioration, with sharply higher unemployment statistics driving the Employment and Labor Market Trends down 7.8%. Naturally, rising unemployment rates mean widespread availability of construction labor and stable-to-falling wage rates. Unfortunately, contractors reported a huge 28% drop in the demand for labor-- too much supply, and virtually no demand.

The reason for plummeting labor demand is quite clear: the Business and Economic Trends segment of the Barometer fell 7.4% in 2nd quarter, also reducing demand for construction materials and equipment. One bright spot is that contractors expect 2009 to bring a more predictable rate of business contraction than 2008, even though they still expect business to be slow.

The level of highway and utility spending in the Carolinas remained relatively constant for 2nd quarter, and panelists expect spending to rise. This upward trend in public works spending is likely to be short-lived, however: both NC and SC reported increasing budget shortfalls driven by rapidly falling tax collections in late 2008. Based on recent reports coming out of both Raleigh and Columbia at year’s end, it’s likely that 2009 will be an extremely difficult time for both state governments. Public works commercial construction spending, including, roads, schools, and infrastructure-related projects, will likely be sharply curtailed in 2009 and 2010.

And last but not least… Contractors reported tightening credit market conditions with limited availability of both short- and long-term funding. While the Federal Reserve flooded the market with liquidity in quarter 2, banks sharply curtailed contractor loans and increased contractor borrowing costs on growing pessimism regarding the future of the commercial construction industry.

Sadly for both states (with the exception of Eastern NC as reported below), this one’s going to be a memorable year that we’d just as soon forget.

Heartland NC: Down 4.6%

It’s quite easy to summarize Heartland NC business conditions in 2nd quarter: everything’s down. The labor market is contracting, business activity is falling, financial market conditions are tightening, and contractors are expecting much of the same into 2009. It’s noteworthy that even in the presence of sharply lower labor demand, Heartland NC contractors still report modestly rising wage rates and limited availability of some skilled positions in the building trades. This trend isn’t particularly dramatic when combined with rapidly falling contractor demand for new hires, but it does differentiate the HNC region from other areas of the Carolinas where contractors report little difficulty in hiring any and all types of workers. The HNC shortage will likely resolve itself quite quickly, however, since virtually no contractors report stronger demand for labor moving into 2009.

Western NC: Down 4.8%

Western NC panelists reported business conditions that look much like the Heartland NC region: just about all business indicators trend downward, with lower business activity, weaker demand for labor, and increasingly cautious bankers limiting new loan approvals for contractors. However, Western panelists reported significantly lower borrowing costs for long-term equipment financing, perhaps a small bright spot in a rather dim economy.

Eastern NC: Up 9.8%

Apparently, Eastern NC didn’t get the recession memo, as construction activity is rising. Material costs in the east are trending moderately lower at mid-year 2008 too; and even financial market conditions are modestly stronger, with the report of continuing credit availability, reasonable financing costs, and a higher volume of loan approvals. It seems for the near future anyway, Eastern NC is the place to be! 
     
Upstate and Lowcountry SC: USC - Up 0.3%; LSC - Down 2.2%

Both short- and long-term business expectations for commercial activity differ in the 2 regions, and they differ in opposite directions. In the Upstate, contractors reported a slight drop in quarterly business volume, while Lowcountry contractors reported significantly higher levels of activity during 2008’s summer months. Looking slightly further into the future, however, there’s a markedly different outlook for commercial activity. In the Upstate, contractors expect 2009 to bring a modest increase in construction volume, while in Lowcountry panelists anticipates 2nd quarter’s uptick to be short lived along the SC coast.

Both Upstate and Lowcountry contractors reported weakening demand for skilled labor, a rising pool of available workers, and stable-to-falling wage rates. In both SC regions, construction equipment and materials costs are stable, although Lowcountry contractors reported significantly tighter financial market conditions. Upstate’s financing conditions in 2nd quarter remained unchanged from the early months of 2008.

Carolinas AGC builds its 2,800 members’ businesses through workforce development, business development and profit management. 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 a more detailed look at the Carolinas AGC Construction Barometer™ results for Quarter 1, 2008 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.