Construction Barometer™ > Previous Quarters Results > News Release - 4th Quarter 2005

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

CONSTRUCTION BAROMETER™ POSTS STRONG ADVANCES

Industry Recovery Gains New Momentum

The Carolinas AGC Construction Barometer™ for 4th quarter 2005 posted its strongest— and most broad-based— advance in the last year. The index rose 2% on improved construction business conditions, a stronger labor market, and near-constant regional financing activity.

The index posted stronger scores on both quantitative and quantitative indicators: hard data figures for business conditions advanced 2.1%, while contractors' input was up 2.2%. The Business & Economic Trends OVERALL segment rose a substantial 8.6%, largely due to rising contractor expectations for improved business conditions. Other factors in the gain included stabilizing materials and equipment costs, and increased contractor expectations that materials cost increases in 2006 will be more manageable and predictable than in 2004 and 2005.

The Employment & Labor trends overall segment fell by 2.5% for the quarter, reflecting a tightening labor market. NC contractors reported markedly stronger labor market conditions, while SC contractors reported a stable trend in an already-favorable labor market continuing from 3 rd quarter. While high quality labor is becoming more difficult to find, contractors reported stable wage rates and only modestly rising labor costs. However, many Barometer panelists expect tighter labor market conditions, and steadily rising labor costs for the remaining months of 2006.

Financing conditions also remained favorable in 4 th quarter 2005. Rising short-term interest rates were countered by a rising score on availability of both short-term working capital financing and longer term equipment financing. In spite of favorable conditions, contractors reported little appetite for increased borrowing in a rising-rate environment. Panelists appear to be growing more confident, however, that interest rates have peaked and current levels of borrowing costs will remain stable.

In summary, the Carolinas commercial construction industry is characterized by significantly stronger business conditions expected to prevail for the balance of 2006, increased demand for labor in an only modestly tighter labor supply (and virtually no immediate labor cost inflation), and stable borrowing costs along with widespread availability of both short- and long-term credit. Risk points include the threat of unexpected increases in materials costs and rising labor rates in the short run, and a stronger potential for labor shortages in the long run.

State vs. State Comparison: NC Up 2.3%; SC Up 1.3%

In North Carolina , Employment & Labor metrics sharply increased in new construction positions reported for 2006, while South Carolina posted a much smaller gain for the quarter. However, since SC reported a significant increase in new positions the previous quarter, labor conditions across both states are quite similar. While contractors in both states expect rising labor costs and tighter labor market conditions throughout 2006, rising wage rates are expected to be more problematic in NC.

While both states expect stronger business growth in 2006, the pace of construction expansion remains stronger in SC by a small margin. DOT spending is expected to remain near 2005 levels throughout both Carolinas , while public and private spending are expected to increase. Reduced demand for construction equipment is more pronounced in NC than SC. And while rising interest rates are putting a damper on borrowing and spending, the trend toward reduced borrowing plans is somewhat stronger in North Carolina .

Contractors in both states reported sharply stronger expectations for future business growth. In SC, however, this increased business optimism is tempered by rising expectations that construction materials cost variability will increase in mid-2006. In NC, contractors reported far more confidence in their ability to predict and manage materials cost increases.

Heartland NC : Favorable Business Conditions for the Region (Up 2.8%)

Highlights of the Heartland's uptick include sharply rising Employment & Labor market conditions, strengthening Business & Economic conditions, and a modest increase in short- and long-term credit availability.

Heartland contractors are optimistic about hiring additional skilled labor at very stable wage rates, and expect only a modest amount of labor supply tightening.

Contractors are equally optimistic about industry expansion, and report increased plans for major equipment expenditures. While debt financing may be more costly for corporate borrowers in 2006, Heartland contractors reported widespread availability of both short- and long-term financing, and a slight increase in funded loan approvals for the quarter.

Western NC : Sharply Stronger Growth (Up 6.7%)

Fourth quarter brought sharp growth to the Western region's Barometer ä score thanks to increased contractor optimism regarding construction activity thru 2006. With expectations for strong business growth, Western NC contractors have revved up their hiring plans. With the expected availability of skilled labor to only moderately tighten, the region didn't report any significant upward pressure on construction wages. Western NC 's run-up in construction industry materials costs experienced in 3 rd quarter seemed to abate in fourth quarter, also contributing to the region's positive Barometer ä growth spurt.

Eastern NC : Hangin' In There (Down 0.8%)

The Eastern North Carolina Barometer ä score slipped slightly in 4 th quarter, yet contractors in the region remain optimistic regarding strength of commercial activity thru 2006. However, Eastern contractors reported much less of a change in anticipated hiring, and a slight drop in current-period business activity at the conclusion of 2005— which led to the reported increase in labor availability and stable wage rates. Eastern contractors followed the trend as they reported stable materials costs into 2006.

Upstate SC: Business Conditions Strengthen (Up 2.3%)

Upstate contractors reported stable labor costs, widespread labor availability, and only moderately stronger expectations that labor costs will rise throughout 2006. The region's Business & Economic trends advanced strongly for the quarter on rising contractor optimism that 2006 will produce strong business growth. Highway and utility spending in 2006 was predicted to remain unchanged from 2005 levels. Overall, Upstate SC is experiencing a positive trend any way you look at it.

Lowcountry SC : Weakness Continues (Down 1.4%)

The Lowcountry region of South Carolina region posted a 1.4% slip from 3 rd quarter. Lowcountry contractors reported vastly different labor market conditions than in the Upstate, with construction industry wages up sharply, an increasingly limited supply of qualified workers available for hire, and much stronger expectations that regional labor conditions will deteriorate throughout 2006. This pessimistic outlook is also reflected in expectations regarding future business conditions in the region, as well as expected higher construction materials costs in 2006. However, the Lowcountry echoed the prediction that highway and utility spending in 2006 will remain unchanged from last year.

For more in-depth analysis provided for members only, visit www.cagc.org and click Construction Market Stats.

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