Carolinas AGC Contractors Making Do, Good Help Hard to Find in Rising Economy

    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
 construction activity:
      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
 supply.
     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
 projects.
 
     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; ltharp@carolinasagc.org; www.cagc.org
 
 

SOURCE  Carolinas AGC