Carolinas AGC Barometer(TM) Shows Continued Stability

No News is Good News for Carolinas Contractors ...

May 25, 2005, 01:00 ET from Carolinas AGC

    CHARLOTTE, N.C., May 25 /PRNewswire/ -- The most recent Carolinas AGC
 Construction Barometer(TM) showed continued stability in the commercial
 construction industry. The index for 4th quarter 2004, unchanged at 2.93 (on a
 scale of 1 to 5), reflected a continuing balance of positive economic trends
 offsetting negative trends. Most Carolinas contractors report that they ended
 2004 in better financial condition than they started the year, and year-end
 business conditions in the regional commercial construction industry were
 quite strong.
     During the last year factors such as shortages of basic construction
 materials, unexpected price spikes, and intense competition for private sector
 projects got a good bit of media coverage. However, positives such as
 favorable financing terms, a ready supply of skilled labor, and steadily
 improving business volume provided a counterbalance so that the aggregate
 Barometer number remained almost totally flat.
     The largest component indicator change is a 1.5% increase in the
 Employment & Labor Trends quantitative data. This slightly stronger contractor
 demand for skilled labor is significant as it follows a quarter in which most
 contractors reported reduced labor demand in the face of rising business
 activity, signaling their expectation that improved worker productivity across
 the existing construction labor force would accommodate increased business
     The increased demand for skilled construction labor into 2005 is expected
 to have mixed results in different regions of the Carolinas, with contractors
 in urban areas reporting moderately greater difficulty in filling skilled
 positions. In the rural regions, where labor markets have been far softer in
 recent months and construction industry activity has accelerated at a slower
 pace, the increased demand for labor has not led to increased difficulty in
 hiring. In all areas of the Carolinas, it is significant that contractors
 report almost no labor cost inflation as the demand for labor has picked up.
 This is attributable to skilled workers migrating from distressed industries
 such as textiles and manufacturing readily available to enter the commercial
 construction industry.
     Fourth quarter Barometer results also show that contractors had slightly
 stronger expectations for rising business activity in commercial construction
 throughout 2005. It is noteworthy that this particular indicator has been
 trending upward for the several quarters, indicating that a steady, sustained
 rate of business expansion is well underway throughout the Carolinas. While
 this trend is strongest in the large urban areas, it is present in virtually
 all areas.
     The trend toward higher interest rates is also placing very little stress
 on contractors at present, with virtually all Barometer panelists reporting no
 change in borrowing conditions or the receptivity of commercial bankers to new
 requests for commercial credit. Higher interest rates are leading many
 contractors to rethink plans to acquire new heavy construction equipment,
 however, reversing an upward trend in the demand for heavy construction
 equipment reported in the third quarter.
     Contractors reported with greater confidence that construction industry
 costs will likely remain stable throughout 2005; this expectation covers labor
 costs, construction materials costs, and construction equipment costs. In each
 case, increased construction industry business activity and the associated
 increased demand for construction labor are expected to place very little
 upward pressure on construction costs as we move through the 2005 year. The
 only inflationary cloud on the construction industry horizon continues to be
 oil and gasoline prices, and for the moment energy cost inflation is not
 expected to ignite subsequent rounds of price increases for other construction
     State vs. State:  Divergent Hiring Plans
     (NC +0.8%; SC -1.7%)
     The Barometer score in North Carolina strengthened slightly by 0.8% for
 fourth quarter, while South Carolina's Barometer score fell modestly by 1.7%
 due to divergent labor market trends in the two states. Rising labor demand in
 North Carolina for fourth quarter is consistent with reports of rising
 construction activity, while in South Carolina the level of activity remained
 virtually unchanged from third quarter.
     This disparity in Barometer rankings for the two states is almost totally
 explained by statistical "noise" in the data. In the last Barometer report,
 South Carolina contractors reported sharply stronger labor demand based on the
 expectation of rising business activity. While North Carolina contractors
 expected a similar gain in business volume, they did not report increased
 hiring plans in the third quarter of 2004, instead deferring the announcement
 of new hiring plans until the end of fourth quarter. The lag between increased
 business activity and the need for additional hiring in North Carolina may be
 explained by contractors simply waiting out the winter months before
 announcing plans to hire additional workers that would not be needed until
 spring of 2005. With milder winter weather, South Carolina contractors
 commenced hiring immediately upon realizing gains in business activity.
     Regional Economic Highlights
     Heartland NC:  Tidal Wave of New Construction Coming Down the Pipeline
     On the surface it looks as if not much has happened in the Heartland NC
 region, with the basic Barometer score of 2.89 virtually unchanged from third
 quarter; a closer look, however, reveals a completely different story. While
 construction volume declined modestly in fourth quarter due to the normal
 winter slow-down in the region, there's a tidal wave of new business activity
 just down the road. Contractors report a big increase in anticipated business
 volume planned for 2005, and they're also planning to accelerate hiring plans
 and construction equipment purchases in coming months to accommodate this
 surge in business activity. For the moment, however, this anticipated growth
 in business volume is being offset by rising financing costs and diminished
 appetite for debt-financed business purchases in the region. Into 2005, even
 steadily rising interest rates won't be able to hold back contractor demand
 for new equipment and new employees with sharply stronger business conditions.
     Eastern & Western NC: Improving Labor Conditions Drive Barometer Scores Up
     (ENC +3.7%; WNC +0.7%)
     The big story in both regions for fourth quarter was a significant
 improvement in the construction industry labor market. On the quantitative
 side of the Barometer, contractors report increased plans for hiring new
 workers in both Eastern and Western NC, with the sharpest gains in employment
 expected down east. At the same time, contractors report that it is becoming
 easier to hire skilled labor due to the large numbers of workers migrating
 from the textile, apparel, and furniture manufacturing industries looking for
 work in construction. There's virtually no labor cost inflation expected in
 either region for 2005. While anticipated business conditions for 2005 have
 dimmed just a bit from earlier expectations, and rising interest rates are
 beginning to affect future borrowing plans, these negative business trends
 pale in comparison to improving labor market conditions in both regions.
     Upstate and Lowcountry SC: Look Similar, but Quite Different
     (USC - Down 1.9% to 2.99; LSC - Down 1.1% to 2.88)
     While both South Carolina regions report slightly diminished commercial
 construction business conditions, the root causes are quite different for each
 region. In the Upstate, contractors report a slight drop in anticipated
 business volume for the coming months, and a big drop in expected hiring plans
 in early 2005 to adjust labor demand to a slower rate of anticipated business
 expansion. Slower business growth in the Upstate is also expected to place
 less upward pressure on regional construction costs, and contractors report
 diminished expectations for rising regional materials costs.
     A completely different picture of the commercial construction industry
 characterizes the Lowcountry, where contractors report strengthening business
 conditions, an increased demand for construction labor, and rising equipment
 and materials costs. At the same time, Lowcountry contractors expect that it
 will be significantly more difficult to fill all available construction
 industry job openings from the available pool of skilled labor, and they
 expect wages in the region to rise in 2005.
     As the largest AGC chapter in the nation with 3,100 member firms,
 Carolinas AGC's mission is to build its members' businesses through workforce
 development, business development, and profit management. More than 75% of
 commercial and industrial construction (buildings, highways/bridges, utility
 facilities) in both North and South Carolina is performed or supported by
 Carolinas AGC members.
     For additional information or names of local panelists contact:
      Lori Tharp, Associate Dir., Business Development, Carolinas AGC
      (704) 372-1450, ext. 5227;;

SOURCE Carolinas AGC