Carolinas AGC Construction Barometer(TM)
In particular, the Business & Economic Trends segment on the Barometer's quantitative side advanced 17.6%, posting its strongest gain in 2 years on modestly rising business activity and contractor expectations that the worst of the recession is likely behind us. Contractors reported a small increase in highway and utility project activity; and private sector work-in-process is holding steady where developers can obtain financing to continue work.
The Carolinas' construction labor market also reflects a slowing rate of deterioration, with little change in the number of new positions anticipated by contractors, stable wage rates and a constant (albeit abnormally high) rate of construction unemployment. Quantitative trends in the financing arena also reflect a slow-down in the downward movement of business activity, with stable interest rates, a steady level of financing activity compared with last quarter and unchanged lender attitudes with respect to new loan approvals.
While these trends are somewhat encouraging, it is important to point out that financial market activity and contractor borrowing requests remained at unprecedented low levels in first quarter. The Barometer's quantitative indicators aren't falling nearly as fast as in 2008, but we're still at rock-bottom levels of business activity compared with the last ten years. It's clear that the recession is not yet over, with materials costs continuing to fall on weak demand, falling contractor orders for heavy equipment and other capital purchases, and flat federal spending on highway construction.
The Barometer's qualitative side mirrors the results shown across the quantitative indicators. Contractors' opinions of business conditions included a slight rise in volume in early 2009, but not sufficient enough to push up labor or materials costs. Construction materials costs are expected to remain stable throughout the rest of 2009 in all categories except petroleum-derivative building products, where contractors are concerned that prices may unexpectedly accelerate. Rising fuel costs continue to be a concern as well.
Panelists reported that modest improvement in the demand for new capital equipment is likely to emerge in the middle of 2010 as business conditions improve in the coming year. However, contractors plan to defer practically all major equipment expenditures for at least a year.
This weak demand for capital equipment is reflected in financial market activity where little change in funding occurred between the last few months of 2008 and early 2009. This marks a trend change as the drop-off in commercial construction financing observed last year didn't appear to continue into the early months of 2009. Consistent with expectations for an improving business climate in 2010, contractors expect financing activity to rise in mid-year 2010.
State vs. State: Labor Market a Bit Stronger in
(NC: Up 3.6%; SC: Up 2.6% )
Business conditions were quite similar across both Carolinas in first quarter, with the real substantive difference occurring in the labor market, where
Both states experienced an upturn in construction activity in early 2009, and contractors in both states expect this trend toward modest business expansion to continue into late 2009. Highway and utility spending advanced marginally in both states, although the trend was a bit more pronounced in
Regional Economic Highlights
Heartland NC: Business & Growth on the Distant Horizon (Up 3.4%)
In Heartland North Carolina, the Barometer advanced 3.4% on stronger hiring plans for the coming year and strengthening business activity, particularly in the highway and utility spending categories. Expanding construction activity, and the expectation that the expansion will continue, led contractors to anticipate a greater number of new hires in late 2009 and early 2010, and more planned purchases of capital equipment.
Increasing labor demand also led panelists to predict modest labor cost increases and a general tightening in the availability of skilled labor over the next several months, sending the Barometer's qualitative side down slightly for the quarter. However, strengthening business activity in the region influenced panelist perception that business conditions are on the rebound for the first time in nearly 2 years; and the trend toward recovery will likely continue, albeit at a very slow pace, into 2010. These expectations led panelists to expect a greater volume of borrowing toward the end of 2009.
Eastern NC: Business Volume Rises but Not Employment (Up 3.9%)
Eastern NC contractors reported an increase in business volume, but paradoxically they reported significantly reduced demand for new labor, a reduction in new positions anticipated for the coming year, and a greater availability of skilled labor in the region. Falling materials costs, rising highway and utility spending, and almost no change in the demand for credit from late 2008 also contributed to the rise in the region's Barometer score.
A concern for Eastern contractors is the overhanging inventory of commercial real estate clogging the market, and the rate at which multifamily real estate prices have dropped in the past year combined with developers defaulting on loan agreements. As falling real estate values continue, it will likely lead to a longer period of time until stronger business activity materializes.
Western NC: Looking Up, But... (Up 3.8%)
Western contractors also reported falling materials costs, rising highway and utility spending and almost no change in the demand for credit from 2008. However, because the western region isn't overbuilt, contractors are planning for a stronger growth in business conditions in 2010.
Upstate and Lowcountry SC: Modest Improvement
Both the Upstate and Lowcountry regions of
Looking ahead to 2010, contractors in both regions expect stable-to-falling building materials prices, modest improvements in business activity, and slightly higher amounts of public spending for highway and utility projects. Business conditions in the Lowcountry are expected to improve at a slightly stronger pace than in the Upstate; surprising considering the downturn in commercial real estate values along the SC coast and the rate of developer loan defaults currently plaguing the Lowcountry. In both
Carolinas AGC builds its 2,800 members' businesses through workforce development, business development, profit management, and workers' compensation insurance. More than 75% of commercial and industrial construction (buildings, highways/bridges, utility facilities) in both North and
For additional information or names of local Barometer panelists contact: Lori Tharp, Carolinas AGC (704) 372-1450, ext. 5227; firstname.lastname@example.org; www.cagc.org
SOURCE Carolinas AGC