Construction Barometer™ > Previous Quarters Results > News Release - 4th Quarter 2008

For additional information or names of local panelists contact:
Lori Tharp, Carolinas AGC
(704) 372-1450, ext. 5227; ltharp@carolinasagc.org ; www.cagc.org

A SILVER LINING ACCOMPANIES THE BAD NEWS

April 2009 – Charlotte, NC – The Carolinas AGC Construction Barometer moved up a slight 0.3% in 4th quarter 2008, reflecting widespread labor availability, rapidly falling commercial construction costs and marked improvement in commercial credit availability. At the same time, gains were offset by plummeting construction activity, increasing public-sector budget woes, falling equipment purchases and growing contractor pessimism regarding anticipated business for summer 2009.

The tug-of-war between deteriorating private-sector business conditions and government stimulus efforts is clearly reflected. The most pronounced upward movement occurred on the Barometer’s Qualitative indicators, where Financing Availability scores moved up 7.1%. This increase was largely driven by contractor reports of increased availability of both short- and long-term financing arrangements, although panelists reported little appetite for this newly available debt capital. Business & Economic indicators were up 4.1% on falling construction costs; panelists reported sharply lower materials, equipment and labor costs due to falling business demand.

Barometer panelist contractors reported expectations that the remaining months of 2009 will represent one of the most difficult periods in modern business history for commercial construction. In preparation, contractors are cutting hiring plans, reducing heavy equipment purchases, slashing operating expenses, shelving borrowing plans, and taking about every precaution they can muster.

A particular trend notably absent in the current economic downturn is the typical countercyclical variable of highway and utility activity: both usually rise in times of economic downturn when public work becomes more prominent, and fall in periods of economic expansion when private work is up. Without the cushion of public work to temper the sharp downturn in private activity, the current recession is likely to be deeper, longer, and more severe than anything witnessed in the last 30 years.

A bright spot: Barometer panelists’ one-year-out expectations turned positive from the previous quarter. It’s worth noting that this statistic moved upward by a strong 17% at year-end 2008, indicating panelists believe conditions will improve by early 2010.

Regional Economic Highlights: NC Up 1.0%; SC Down 1.1 %
While business conditions were basically similar across the Carolinas, Barometer trends pointed in opposite directions in 4th quarter 2008 due to:

--Differing reports from contractor panelists regarding materials costs and labor costs. SC contractors report a smaller drop in overall construction materials and labor costs than NC contractors. This is somewhat paradoxical, since contractors in both states report falling demand for labor, increasingly smaller workforces, and reduced hiring plans for the remaining months of 2009.

--Differing rates of declining business activity. While NC contractors report a steeper drop in Business & Economic conditions on the Barometer’s quantitative side, contractors in both states expect an industry pick-up in early 2010, with greater optimism across North Carolina contractors than South Carolina panelists. This likely reflects the rate at which the NC population base continues to expand, even in the most severe economic downturn since the Great Depression.

Heartland NC: Expectations Run Counter to Current Data (Up 3.5%)
Heartland NC experienced a 3.5% change, driven upward by rising contractor expectations for improvement overshadowing the current downward financial trends. Of greatest concern was the drop in construction volume against rising expectations that this downturn may persist well into summer 2009.

On the Qualitative side, virtually all financial indicators showed signs of improvement, with Employment and Labor Market trends up 7.6%, Business & Economic conditions up 9.3%, and Financial Market conditions up 12.8%. Contractors expect better business conditions in 2010, and expect the government’s stimulus efforts to gain traction in 1) the contractor financing market, and 2) the public construction market for highway, utility, and other public works. In particular, contractors expect easy labor conditions, lower equipment and materials costs, rising business activity, and less bidding competition well into 2010.

Eastern NC: Falling Costs and Business Activity (Down 6.2%)
Quantitative measures showed a sharp drop in Eastern NC due to significantly weaker business conditions and growing contractor pessimism that all of 2009 will be difficult.
In keeping with this downturn in current and expected business activity, labor demand fell as well. The Qualitative index dropped 8.6% in the east on softening business conditions, but contractors also reported increasing difficulty in hiring skilled labor. Ironically though, few Eastern NC panelists reported any plans to hire new workers.

Western NC: Falling Costs and Business Activity (Down 0.1%)
Quantitative measures showed a sharp drop in Western NC, where Business & Economic Trends fell 17% due to significantly weaker business conditions and growing contractor pessimism that all of 2009 will be difficult.

Labor market conditions were consistent with regional business activity. Contractors reported widespread availability of labor, stable-to-declining construction industry wages, and growing expectations that the coming months of 2009 would bring deeper recessionary conditions to the industry.

Upstate SC (Up 0.4%) More Stable than Lowcountry (Down 4.5%)
Conditions in SC mirrored those in NC in 4th quarter, with the Upstate remaining relatively flat and the Lowcountry falling 4.5%. The SC regions were similarly influenced by rising unemployment and falling demand for new workers, weakening business activity, and increasingly pessimistic contractor attitudes regarding 2009. While these trends were present in both SC regions, the strength of the downturn is affecting the Lowcountry to a greater extent.

Overall construction costs fell in both regions; and both enjoyed easier credit market conditions. The trend toward easier lending was more pronounced in the Lowcountry. Expectations that business conditions will improve in 2010 are felt in the Upstate and Lowcountry, but the rate of improvement is much stronger in the Lowcountry. Upstate contractors represent the most pessimistic group in both Carolinas regarding the strength of a business recovery for 2010. In contrast, Lowcountry contractors (in addition to NC Heartland contractors) are among the most optimistic.