Construction Barometer™ > Most Current Results - 4th Quarter 2007
(Based on 4th Quarter 2007)
BUSINESS HOLDS STEADY--BUT BAROMETER SHOWS SIGNS OF STRESS (Down 0.8%)
While Carolinas AGC Construction Barometer business activity for fourth quarter 2007 was virtually unchanged (down 0.8%) from 3rd quarter, there are several signs of increasing stress across the Barometer’s year-end indicators.
Current negative trends in the labor, financial and commodities markets were reflected in the Barometer’s quantitative measures: the Employment & Labor trends segment declined 2%; Business & Economic conditions declined 2%; and Financing Availability dropped 1.5% in 4th quarter. In all cases, there’s a single explanation: Recession. Across the Carolinas, contractors reported rising unemployment, anticipation of fewer new positions, and expectations for slowing business activity later in 2008. As a consequence, commercial contractors reported little demand for new construction equipment, a reduced appetite for new borrowing, and a smaller volume of new loan approvals for the quarter.
On the sunny side, contractors in both states reported a plentiful supply of skilled labor, stable wage rates, and growing expectations that throughout 2008 and 2009 the Carolinas construction industry will remain a solid buyers’ market for new labor. Most construction supplies-- excluding petroleum products and structural steel-- are widely available, with prices expected to remain reasonable in coming years. Highway and utility spending remain unchanged from earlier in 2007, although a downturn in public work in the near future is expected. Contractors also reported that the cost of credit remains quite reasonable, even though there’s increased lender scrutiny for virtually all types of credit requests.
Enter the clouds: while the commercial industry will likely remain stable in the Carolinas throughout most of 2008, contractors expect slower growth— negative growth in some regions-- for 2009. It’s increasingly likely that a rapid turn-around in the American economy just isn’t in the cards for 2008, raising the probability that the Carolinas will enter a recessionary period toward the end of 2008 that will continue into 2009.
State vs. State: NC Unchanged (Up 0.1%); SC Shows Drop (Down 2.9%)
Recessionary conditions affecting the national economy appear to be having an earlier and stronger impact on South Carolina (dropping 2.9%) than North Carolina (up 0.1%). NC contractors reported modestly slower construction volume, yet still anticipate at least some industry growth for the remainder of 2008. In contrast, SC contractors reported sharply lower business activity at year-end 2007 and anticipate a much more substantial drop in business throughout 2008. Accordingly, new financing arrangements and equipment purchases dropped sharply in SC, while rising modestly in NC.
Financing conditions across the 2 states show a divergent trend on the Barometer’s Quantitative side, with SC contractors reporting a sharp drop in new commercial loan approvals, while contractor loan approvals in North Carolina remained unchanged. However, both states reported tightening credit market conditions and expect credit for both short- and long-term borrowing needs to become increasingly more difficult to acquire throughout 2008 and 2009.
Regional Economic Highlights
Heartland NC: Heartland Keeps Pumping (Down 0.5%)
Heartland contractors find themselves in one of the strongest commercial construction markets in the country in early 2008. In contrast with recessionary business conditions throughout the US, the Heartland region of NC continues to show expanding commercial construction activity. Contractors reported no change in business activity for the quarter, stable materials and equipment costs, stable labor costs, a constant level of construction financing activity, and lower borrowing costs.
Unfortunately, contractors expect recessionary conditions to reach the region toward the end of 3rd quarter 2008. While labor conditions were attractive for hiring in early 2008, contractors reported doing more work with fewer employees in anticipation of a business downturn. They also are accelerating the purchase of heavy construction equipment and taking advantage of falling equipment prices brought on by national recessionary conditions while business activity and financing availability remain plentiful in the region.
Western NC: Recession?? What Recession? (Up 8.5%)
Western North Carolina posted surprising gains (up 8.5%) in virtually all Barometer categories in the 4th quarter. The region’s strongest advance occurred in the labor market, where labor availability largely improved, wage rates remained stable, and contractor demand for new workers remained stable against hiring activity reported in 3rd quarter. At the same time, contractors within the region reported a general strengthening in construction activity, and only modestly higher construction materials costs. Improved business conditions within the region led contractors to purchase more heavy construction equipment, and financial activity for the both short- and long-term purposes rose in the region over the course of the quarter.
Eastern NC: A Slight Weakening (Down 1.1%)
Commercial activity in the Eastern NC region weakened slightly at year-end 2007 on slowing business activity, rising construction materials costs, and tighter labor market conditions. In spite of slowing business activity, Eastern contractors reported increased difficulty in hiring skilled workers and modestly higher labor rates. Like other regions of the Carolinas, eastern contractors expect activity to slow throughout 2008, and are adjusting planned construction equipment purchases downward accordingly. In 4th quarter however, the volume of commercial credit requests approved within the region, and heavy equipment purchases, remained constant with activity levels observed in the year’s 3rd quarter. Contractors reported widespread availability of both short- and long-term credit from area lenders.
Upstate and Lowcountry SC: Similar Conditions in Both Regions
(Upstate – Down 4%; Lowcountry - Unchanged)
In most respects, industry conditions going into 2008 across South Carolina regions were quite similar. Both the Upstate and Lowcountry regions reported tighter credit conditions, a reduced rate of new loan approvals, constant labor costs, and increasing expectations that business conditions in SC’s commercial construction industry will weaken over 2008. It seems the trends are more pronounced across the Upstate, though.
However, labor conditions across the two regions are quite different from one another. In the Upstate, contractors reported weakening demand for skilled labor on modestly slower business activity in 4th quarter; Lowcountry contractors reported increased new hiring plans and easier labor market conditions for the next several months due to modestly stronger business activity, a trend likely to be short-lived.
For a more detailed members-only look at the Carolinas AGC Construction Barometer™ results for Quarter 4, 2007 visit www.cagc.org, and click Construction Market Stats.
To participate as a Construction Barometer panelist, contact Lori Tharp at 704/372-1450 ext. 5227 or ltharp@carolinasagc.org.
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