Construction Barometer™ > Previous Quarter Results > News Release - 4th 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 AGC Construction Barometer Shows Lagging Recovery
Economic Rebound Detours Around Carolinas Construction

CHARLOTTE, NC –June 1, 2004 - The Carolinas AGC Construction Barometer™ for fourth quarter 2003 gave up practically all the gain seen in third quarter, falling 4.1% to 2.95 on a scale of 1 to 5. As the general economy in the Southeast followed national trends and posted stronger economic growth, business conditions in the construction industry seem to remain in somewhat slow-growth mode.

The Barometer tracks construction industry conditions by integrating hard statistical data for each quarter with the current business perceptions of commercial contractors and industry partners.

The strongest message coming out of the most recent Barometer index was the discrepancy between contractor/ industry opinion and hard, economic statistics. Actual quantitative measures remained completely unchanged from third quarter 2003, but contractors reported a broad-based weakening in the qualitative measures, down 7.8 percent overall, including each of the 3 Barometer segments: Business & Economic Trends, Employment & Labor Trends, and Financing Availability.

The major sources of this reported economic weakness: lower business volume reported by contractors in every region of the two-state area, and rapidly rising construction costs.

Rising construction costs represent a completely new phenomenon beginning in 4 th quarter, making an appearance for the first time since before the 2001 recession. The trend toward rising costs is particularly alarming because its onset has been sudden and unexpected during a period of tepid business activity. Contractors reported across-the-board price increases on major building supplies including brick, sheet rock, structural steel, stainless steel, copper, lumber, plastics, and petroleum for construction equipment.

Strengthened industrial demand from other segments of the economy is bidding up many construction-related commodity prices. Eventually, this increased business activity will create greater demand for commercial construction projects and generate increased business activity within the construction industry.

Contractors report slightly more difficult hiring conditions, and the expectation that hiring conditions and labor costs will likely deteriorate even more through 2004. Hiring conditions appear to be tightening more in urban regions than rural areas.

The principal weakness in the construction financing market this quarter is related to the expectation among contractor panelists that interest rates will rise this year, rather than empirical evidence at this point that rates are rising.

Regional Highlights

Looking at the quantitative (statistical) side of the Barometer, the most striking state-to-state difference occurs in the Employment & Labor Trends segment, where North Carolina posted a 5.2 percent gain for the quarter while South Carolina experienced a 3.8 percent decline. The source is differences in anticipated construction industry hiring plans and expectations for rising business activity.

Heartland NC Stats Stable

The large, urban markets once again outperformed the rural areas of the region. The Heartland region, containing the 3 largest urban markets in North Carolina, was down only four-tenths of one percent for the quarter, illustrating the benefits of a region characterized by a diverse mixture of businesses, a growing population base, and the strongest labor market conditions in the two-state area. The most surprising change in the region for the quarter was a substantial improvement in the region's labor market. Heartland contractors reported increased hiring plans extending well into 2004. This region's Employment & Labor Trends index, up a whopping 19.8 percent, represents the best economic news for the Carolinas construction economy for the fourth quarter.

Western NC down 7.2%

In contrast to labor market growth in the Heartland, the Western region reported falling business activity, weaker expectations for business growth, and diminished hiring plans for 2004. The most troubling statistic in the quarter's performance was a 15.5% drop in the Business & Economic Trends segment reported by Western contractors due to sharply higher construction costs, and diminished expectations for improvement in 2004 business volume. Western contractors also reported more competition bidding for available work, leading to increased margin compression and reduced contractor profitability.

Fourth quarter construction industry business conditions in Eastern NC mirror those in the west, with a few subtle differences. Eastern contractors reported greater labor market difficulties for the quarter. The principal labor market difficulty in the region is a trend toward higher construction industry wages reported by Eastern contractors, and a drop in the level of unemployment. While this is good news for the general Eastern economy, it signals that contractors in the region are experiencing increasing difficulty in hiring and retaining skilled construction labor.

In both Upstate SC and Lowcountry SC, contractors report significantly weaker business conditions and diminished expectations for much business improvement in 2004. However, the Upstate shows somewhat greater economic strength due to its more urban character, and the diversified mix of businesses operating within the region, and a growing population base.

Lowcountry SC down 7.3%

Lowcountry contractors reported significantly weaker business conditions—the Business and Economic Trends segment declined almost 20%. Paradoxically, however, employment conditions remained unchanged in the Lowcountry on the quantitative side of the Barometer, while falling by nearly 5% in the Upstate. This is probably a function of differential winter weather conditions between the 2 South Carolina regions with mild Lowcountry winters allowing for year-round construction more so than in the upper part of the state. As in the Upstate though, Lowcountry contractors report diminished hiring plans for early 2004.