CHARLOTTE, N.C., Aug. 11 /PRNewswire/ -- If you're feeling the pull of
having more work but not more skilled workers, you're not alone. The newest
Carolinas AGC Construction Barometer(TM) fell 2.4% from 4th quarter 2004,
reflecting the paradox of rising construction activity and growing difficulty
finding skilled employees to perform the work.
The Barometer's leading index of future construction activity is pointing
sharply higher as contractors in nearly all regions of the Carolinas report
they expect stronger business volume through 2005 and well into 2006. At the
same time, the economic factors pushing the overall index downward were a
reduction in anticipated labor demand, higher oil prices, and rising financing
costs. Because the Barometer represents a composite view of the industry, the
net effect was a slight negative.
The biggest surprise in the Barometer statistics is the widespread drop in
anticipated construction labor demand. While contractors report growing volume
and stable labor costs, they also report that it's harder and harder to hire
qualified workers. So -- they're simply doing without.
Other industry trends driving the Barometer downward in the face of rising
1) higher oil prices driving up operating costs
2) rising financing costs impacting capital budgets -- while contractors
report friendly bankers with plenty of money available for industry
lending, there are few takers for either working capital financing or
long-term borrowing. In turn, we see reduced plans for capital
equipment acquisition and working capital expansion. It's clear that
9 successive moves by the Federal Reserve to tighten the money supply
and raise borrowing costs have realized their intended effect.
Not all Carolinas contractors report they expect an uptick in business
activity to continue throughout 2006. Those in the Heartland North Carolina
region report they look for new, large commercial construction projects to
come on-line in 2006 at a slower pace than in 2005. Elsewhere in the Carolinas
construction industry, however, just about everyone is predicting stable
business growth over the 2005-06 period.
Behind the Scenes
If most everyone is so happy about the state of the industry, then why is
the Barometer showing a drop in the 1st quarter?
Look inside the 3 negative factors that nudge aside the positive
indicators in the aggregate Barometer -- they're relatively benign.
A) Reduced labor demand in the face of growing volume reflects rising
productivity of the current labor pool -- always a long-term positive. In
addition, the tightness of the qualified labor pool is due to increased labor
demand in both the commercial arena and the red-hot residential construction
industry. As a consequence, it's quite logical that commercial contractors
would expect to be able to hire fewer workers, and accommodate the increase in
business activity that they anticipate with their existing stock of labor.
B) The current shock in energy prices is not nearly as much a threat to
economic recovery as the oil price shocks from the 1970s. This time around,
rising energy prices are being driven by rising demand for oil, not falling
C) Finally, rising interest rates are relatively benign in the current
economic environment, too. In the past, rising interest rates triggered
economic recession. This time around, rising interest rates are accompanied by
relaxed bank lending standards, continuing consumption spending by households,
and rising investment spending by businesses so flush with cash that they can
ignore rising financing costs and fund business expansion plans from internal
capital sources. The result is a strengthening economic recovery, reduced
unemployment, and a rising supply of commercial and residential construction
The bottom line: our commercial contractor Barometer panelists are correct
in their assessment of strengthening business conditions in Carolinas
construction. This time around, it's perfectly acceptable to ignore the
negative economic indicators and simply trust your business instincts.
State vs. State: South Carolina Contractors Appear More Optimistic
(NC Down 3%; SC Down 1%)
The difference between contractor responses in the two states is
attributable to two factors:
1) anticipated declines in labor demand are stronger among NC
contractors, who are more pessimistic about being able to hire
qualified construction laborers. While SC contractors also plan to
reduce their hiring plans, the rate of change in labor demand is much
smaller in the Palmetto State, as contractors foresee no change in
their ability to recruit and hire qualified and competent employees.
2) While Tar Heel contractors in the Heartland region expect a modestly
slower construction season next year, contractors throughout South
Carolina expect 2006 to be a stronger year than 2005.
Heartland NC Down 3%
The big story in the I-85 corridor's Heartland region is a strengthening
belief that it will become even more difficult to recruit and hire qualified
workers. Since the Heartland represents the largest population of contractors
in the Carolinas, this diminished appetite for labor was the major negative
factor driving the composite Barometer score downward. Heartland contractors,
unlike their counterparts in every other region of the Carolinas, expect
generally weaker business conditions in 2006, perhaps because with the
strength of the current activity, local contractors just don't expect the pace
to continue into 2006. Elsewhere in the Carolinas, however, contractors expect
improving business conditions through the 2006 construction season.
Eastern NC Down Only 1.6%
This slight drop is less pronounced than that of the overall index. It
reflects the fact that while contractors down east report diminished demand
for labor, they report stable industry activity and expect stronger business
for the balance of 2005 and the coming 2006 year.
Western NC Sharply Down 7.2%
Western contractors report a sharp drop in business during early 2005.
This is most likely a normal, seasonal reduction in business for Western
region contractors, because Barometer panelists in the area report it likely
that business conditions will improve in the remaining months of 2005, and
expect stronger business for the coming 2006 year.
Upstate SC Down Only 1.6%
Barometer results in the Upstate SC region resemble those seen in the
Heartland NC region, with a few important differences. The diminished demand
for labor observed in the Heartland region is also evident in the Upstate, but
to a much smaller extent. In addition, Upstate contractors don't believe that
current difficulties seen in hiring qualified construction labor will persist
throughout the remaining months of 2005. While contractors in this region are
slightly more confident that business volume will remain steady thru the end
of summer, they anticipate a slight drop in construction activity toward the
end of 2005 and into the early months of 2006.
Lowcountry SC Up 0.5%
Lowcountry South Carolina contractors continue their tradition of going
against the Carolinas overall trend by posting a 0.5 % increase in their
regional Barometer score. Lowcountry contractors reported lower anticipated
labor demand for 2005, and were also pessimistic about hiring qualified labor.
However, this negativity was completely overshadowed by a sharp rise in
regional construction business conditions, an increase unmatched in any other
region. Even better for Lowcountry contractors, the stats show a sharp
increase in contractor optimism regarding 2006. For the time being, the
Lowcountry represents the strongest, best performing region of the Carolinas
commercial construction industry.
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; email@example.com; www.cagc.org
SOURCE Carolinas AGC