Construction Barometer™ > Previous Results > News Release - 4th Quarter 2006

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

Carolinas AGC Construction Barometer™
April 2007 – Charlotte , NC

TREND IN BUSINESS EXPANSION CONTINUES

The most recent Carolinas AGC Construction Barometer ä again posted again, showing continuing positive momentum on rising construction activity . The 0.7% rise is attributable to strengthening economic indicators released in March for 4th quarter 2006; business impressions provided by the Barometer's contractor panelists during 1st quarter 2007 maintained their positive values.

In the Quantitative series of the Barometer, the largest construction activity gains occurred in the Lowcountry SC and Western NC regions , while activity declined somewhat in Upstate SC and Eastern NC; business volume in the NC Heartland remained unchanged. Unemployment fell modestly due to new positions becoming available while expectations heightened for new business growth .

Qualitative indicators showed Business & Economic conditions advancing 1.3% and Financing Availability trends rising 0.1%. While contractors reported they anticipate growing labor shortages and rising wages beginning in summer, they anticipate more predictable and manageable rising materials prices throughout the year.

Overall, contractors report strengthening business activity, rising expectations that 2007 will turn out to be a better year for business than 2006, stable (or at least predictable) construction materials costs, falling construction equipment costs, and slightly better availability of both short- and long-term credit.

In spite of strong credit availability and stable interest rates, contractors reported little need for new financing . Interestingly, the collapse in residential construction activity observed across much of the US is having virtually no impact on lender attitudes for commercial contractor borrowing requests, indicating that lenders perceive the downturn in construction activity to be confined entirely to the residential segment of the market.

State vs. State: Gains in Both States, but Stronger Increase in SC

(NC up 0.3%; SC up 1.6%)

Both North and South Carolina posted gains, but the rate of increase was significantly stronger in SC (up 1.6%) than in NC (up 0.3%). The difference is found on the Barometer's Qualitative side, where SC contractors reported a 2.5% gain while NC contractors reported a 0.9% drop. The single factor accounting for most of this difference was the labor market: NC contractors reported significantly tighter labor conditions to emerge in the next several months, while SC contractors remained optimistic that the widespread availability of skilled labor and stable wage rates will continue throughout 2007. Interestingly, while contractors in NC expect tighter labor market conditions at mid-year 2007, they don't expect a significant increase in skilled labor costs.

Elsewhere across the Barometer statistics, contractors perceived that construction conditions in NC are strengthening at a slower pace than in SC. The Business Economic trends segment rose 1.1% in NC, while in SC a 1.8% gain was reported. In addition to rising activity in the Lowcountry, contractors cited sharply falling materials and equipment costs as the primary reasons for an improving business climate in SC . NC contractors reported stable, but not falling, materials and equipment costs.

Credit market conditions appear to be taking a slightly different path; SC contractors reported a significant increase in the availability of both short-and long-term credit, while NC contractors noted very little change. In spite of this difference, lenders continue to regard new contractor borrowing requests favorably in both states, recognizing the health and vitality of the region's construction industry .

Regional Economic Highlights

Heartland NC : Springtime Business As Usual (Unchanged)

While NC's Heartland region reported no change in its Barometer value, it's important not to oversimplify a few important emerging trends in the region: the Heartland displays the typical early spring pattern of rising business volume, growing demand for construction labor, and increased contractor optimism about the year ahead . These trends are each reflected in the Barometer's Business & Economic conditions measure, which did improve 3.2%— only to be offset by a 4.7% deterioration in Employment Labor Market trends. While labor shortages are unlikely to drive construction wages significantly higher, they are dampening contractor optimism regarding general business conditions in the Heartland for 2007.

Eastern NC and Western NC : Divergent Business Trends...

(ENC - Down 0.9%, WNC - Up 5.5%)

Business conditions in the extreme regions of North Carolina were very different. Down East, the Barometer slipped by 0.9%, while in the West it advanced 5.5%. In an unusual turn of events, just about every business indicator pointed in opposite directions across these 2 NC regions. In the East, the Employment & Labor Market trends fell 2.9%; while in the West, employment conditions improved a whopping 12.7%. In the East, contractors reported a reduced rate of business expansion projected for early 2007, while western contractors reported the just the opposite.

While materials costs seem to be rising for eastern contractors, their neighbors to the west reported falling materials costs and equipment prices. In the East, contractors reported a slight drop in highway and utility spending, while the West reported modest gains in highway and utility spending. Both regions saw an uptick in the Qualitative Business & Economic trends . Despite falling economic indicators in the East, contractors in the region joined with their Western counterparts in projecting stronger construction activity over the course of 2007.

Upstate and Lowcountry SC : Did All the Skilled Workers Move to the Beach? (USC - Down 1.1%, LSC - Up 8.6%)

Barometer scores across the 2 South Carolina regions were markedly different, with the Upstate falling 1.1% while the Lowcountry rose 8.6%. This difference is almost entirely explained by widely divergent labor market conditions between the regions, particularly on the Qualitative side. In the Upstate, contractors reported a big drop in Employment & Labor Market trends (down 5.6%), attributable to a general tightening in the skilled labor market. Paradoxically, Lowcountry contractors reported precisely the opposite trend, with a whopping 37.8% increase in Employment & Labor Market trends . This sort of large percentage change very rarely occurs in the Barometer statistics. In the Lowcountry, panelists reported a much greater supply of skilled labor available for hire in the region, falling labor costs, and increasing expectations that easier labor market conditions will characterize the industry for the duration of the 2007 season. It's almost as if all of the skilled construction workers in South Carolina picked up and moved to the coast right around Thanksgiving.

While both regions experienced a modest increase in Business & Economic conditions , the rate of change was more substantial in the Lowcountry (up 3.7%) than the Upstate (up 1.1%). While Upstate contractors reported rising business activity and strengthened expectations that 2007 will be a stronger year than 2006, their Lowcountry neighbors reported declining business activity for 2007. Falling construction materials costs and equipment prices accounted for a source of good news in the Lowcountry's Business and Economic trends variable, leading to the 3.7% gain in this segment of the Barometer score.

For a more detailed look at the Carolinas AGC Construction Barometer™ results for Quarter 4, 2006 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.