Unemployment, Interest Rate Rise Dampen Carolinas' Enthusiasm; Carolinas AGC Construction Barometer(TM) Drops 15.4%

Aug 04, 2000, 01:00 ET from Carolinas AGC

    CHARLOTTE, N.C., Aug. 4 /PRNewswire/ -- Reflecting the influence of
 national economic conditions on the Carolinas' economy, first quarter results
 for the Carolinas AGC Construction Barometer(TM) signal a decided decline.
     The grand index decreased to 2.36 on a scale of one to five, representing
 the largest drop in the index since its inception in the third quarter of
     In explaining the drop, Tony Plath, UNC-Charlotte associate professor of
 finance and originator of the Barometer's methodology, points to several
 economic trends, including a rising level of general unemployment in the North
 Carolina/South Carolina region, rising interest rates and increased interest
 rate volatility, and reduced heavy equipment purchases and rentals by
     These factors contributed to the 27.9% drop in the quantitative component
 of the Barometer, contrasting with a much less severe decline in the
 Barometer's qualitative component.  On the qualitative side, contractor
 perceptions of economic strength in the two-state region fell only 4% in the
 first quarter, while managers within allied firms reported a 7.2% drop in
 business confidence.
     According to Plath, the central contractor concern that springs from the
 Barometer's deterioration is whether the rising rate of unemployment observed
 across the Carolinas is occurring inside or outside the construction industry.
 "While we're seeing an increase in the general level of Carolinas
 unemployment, this increase does not appear to be showing up in the
 construction industry, where labor conditions remain very tight."  He says the
 increase in general unemployment may spell relief down the road for area
 contractors, because an increase in general unemployment will hold down some
 of the upward pressure on construction wages, particularly for unskilled
     Plath explains that contractor-panelists reported almost no change in
 hourly labor costs in the first quarter, and they expected little change in
 labor costs over the course of the coming quarter.  Contractor worry is
 centered exclusively on the increased difficulty they face in hiring skilled
 labor, and the perception that this difficulty will grow stronger in coming
 months -- not on the possibility of wage inflation.
     Concerning the drop in heavy equipment acquisitions and rentals by
 contractors that the Barometer reports, Plath suggests that higher interest
 rates -- coupled with the slow winter-season demand for equipment purchase and
 rentals -- explains this statistic.  While the spring construction season will
 bring some improvement to heavy equipment purchases and sales, higher interest
 rates should cause this value to remain below average throughout the remainder
 of the year.
     Survey panelists reported that they expect slower economic growth in
 coming months, and expressed less interest in making major expenditures for
 equipment and inventory.  This trend is largely attributable to rising bank
 financing costs, tighter lending terms, and a general slow-down in the rate of
 economic activity within the Carolinas region.
     In summary, Plath states that, "Contractors in the two-state region can
 expect the weakening in general business conditions to continue over much of
 the next year," and that this trend "isn't necessarily bad news."  Across the
 board, the silver lining in slower economic growth for the construction
 industry is "much less inflationary pressure, with overall costs not likely to
 increase in the near term, and far fewer supply chain disruptions.  It appears
 that the Fed's tightening of monetary growth is having the intended effects of
 slowing economic activity and limiting the acceleration of price inflation in
 the economy."
     As the largest chapter in the nation with more than 3,400 member firms,
 Carolinas AGC's mission is to build its members' businesses through workforce
 development, business development, profit management, and CompTrust AGC -- a
 self-insured workers' compensation trust for members.  More than 75 percent of
 commercial and industrial construction (buildings, highways/bridges, utility
 facilities) in both North and South Carolina is performed by Carolinas AGC

SOURCE Carolinas AGC