Construction Barometer™ > Previous Results > News Release - 3rd 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 .

CAROLINAS CONSTRUCTION INDUSTRY BUSINESS RECOVERY ROLLS ON

Carolinas AGC Barometer ™ Holds Steady

CHARLOTTE – February, 2005 –For the third consecutive quarter, economic recovery in the Carolinas commercial construction industry continued on a steady course. At 2.93 on a scale from one to five, the Carolinas AGC Construction Barometer™ was virtually unchanged for third quarter 2004, indicating the industry uptick first observed in early 2004 continuing at a relatively constant pace, with the industry moving forward at a 4% annual rate.

The Barometer's statistical trends represent good news for area contractors.

Contractors reported little change in labor costs, and expectations of continued stability. While contractors reported somewhat tighter labor markets, consistent with falling unemployment throughout the Carolinas, it appears that increased labor availability stemming from job losses in textiles, apparel, and furniture manufacturing is sufficient to accommodate planned construction industry job growth throughout 2005.

On the Business & Economic Trends index of the Barometer, a growing number of contractors expect business activity to accelerate in 2005. Increased construction market business volume does not seem to be placing additional upward pressure on equipment and materials costs however-- contractors report virtually no change in equipment costs, and only isolated materials cost increases. Contractors reported that the unexpected spike in construction materials costs of early 2004 is not likely to reappear in early 2005.

The increased business volume anticipated by Carolinas contractors seems to be occurring in all segments of the industry. Both private market spending and public works spending on highway and utility projects increased for the quarter, and DOT spending levels remained constant from the level observed in mid-2004. Contractors reported increased plans to acquire new heavy equipment during the first half of 2005. Contractors reported no equipment cost inflation, and expect this trend to continue into 2005.

Financing conditions appear favorable for the acquisition of new construction equipment, too. A significant number of contractors reported initiating new borrowing requests in third quarter, leading to the expectation that commercial loan funding volume in the Carolinas construction industry will rise.

View time series charts for each region

State vs. State: South Carolina Leads North Carolina in Construction Growth

(NC down 1.3%; SC up 2.2%)

For the third quarter 2005, South Carolina contractors reported stronger commercial construction business indicators than their North Carolina counterparts in virtually every category measured by the Carolinas AGC Barometer. South Carolina contractors also experienced stronger public-sector construction spending, particularly in the utility and highway categories, while North Carolina public-works spending was virtually unchanged from second quarter.

Palmetto state contractors also reported a modest increase in anticipated hiring plans, while North Carolina contractors reported a significant drop in the number of new positions anticipated for 2005. In addition, South Carolina contractors reported increased construction equipment purchases, and a greater number of long-term construction loan approvals for third quarter. Similar statistics covering North Carolina contractors remained unchanged from levels observed in second quarter 2004. In aggregate, the numbers suggested a significant surge in business activity that swept through South Carolina in third quarter, while North Carolina commercial construction activity continued to expand at a pace virtually unchanged from early 2004.

REGIONAL ECONOMIC HIGHLIGHTS

Heartland NC: Labor Shortage? What Labor Shortage? (+1.5%)

Commercial construction business conditions along the I-85 /I-77 corridors remained almost completely unchanged from second quarter, with one noteworthy exception: contractors in the region reported much weaker demand for new workers. The Employment & Labor Market Trends segment on the Barometer's quantitative side fell by 8.5% for the quarter, representing one of the sharpest statistical changes in all Barometer indicators during the third quarter.

Practically all other statistical indicators in the Barometer posted a slight gain for the Heartland region in third quarter, indicating that economic recovery remained on track. In spite of this, , labor demand in the region is down significantly, and appears likely to continue into early 2005.

Western NC: Construction Activity Rises Sharply (+5.6%)

Construction activity was up sharply for third quarter in Western NC, leading the Business & Economic trends segment of the Barometer up more than 12%. In addition, the number of new construction industry positions anticipated for the Western region was up significantly. According to contractors in the West, the increased business activity observed in third quarter is likely to hold at least through the first six months of 2005, driving demand for construction labor, building materials, and construction equipment up. The principal source of increased construction activity is new private sector projects coming online.

Eastern NC: Weaker Conditions than Heartland or Western NC (-3.3%)

Construction activity was quieter down East, with construction volume up only slightly for the quarter. In addition, the number of new construction industry positions anticipated for the Eastern region declined. Private sector work remains scarce, and in spite of low interest rates and little construction industry cost inflation, business activity remained sluggish for the quarter.

Upstate and Lowcountry SC: Big Improvements (USC - Up 2.3%; LSC - Up 1.9%)

Both the Upstate and Lowcountry regions of South Carolina showed marked improvement in commercial construction activity for third quarter 2004, with the surge in volume expected to continue well into 2005. The only statistic separating the two regions is an increased rate of highway and utility spending in the Upstate not found in the Lowcountry. Judging from contractor reports, however, this difference is completely temporary. Upstate contractors expect utility spending to diminish, while Lowcountry contractors reported an anticipated rise in highway and utility spending in early 2005. Given these expectations, the movement in highway and utility spending from the Upstate to the Lowcountry should even out the rates of construction growth between the two regions. Meanwhile, all other business indicators covering South Carolina commercial construction are pointing in a positive direction.

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