Construction Barometer Shows Regional Bright Spots

News provided by

Carolinas Associated General Contractors

Apr 09, 2010, 07:00 ET

Carolinas AGC Construction Barometer(TM)

CHARLOTTE, N.C., April 9 /PRNewswire-USNewswire/ -- For fourth quarter 2009 the overall Barometer score dipped a modest 2.5%, reaching a value of 2.81. This figure represents little movement from fourth quarter of 2008, when the Barometer stood at 2.85.

(Logo: http://www.newscom.com/cgi-bin/prnh/20100409/DC83321LOGO)

While hard data indicate the recession's darkest days are behind us, and the economy seems to be moving slowly forward, construction improvement is lagging. However, closer analysis of specific regions reveals hopeful bright spots.

Overall Barometer Highlights:

Financing Availability indicators remained flat at year-end 2009, with record-low interest rates unchanged and contractors reporting little relief to the on-going credit drought. Credit for virtually every construction-related purpose remains difficult to get, difficult to renegotiate, and increasingly expensive. Contractors don't expect these conditions to worsen substantially throughout 2010 but hold little hope for significant improvement.
Business & Economic numbers fell 5.7%-- there's simply not much construction activity, and contractors reported little expectation that 2010 would bring significant changes. Consistent with widespread industry weakness, construction materials prices are falling, there's weakening demand for heavy equipment purchases and fixed asset acquisitions, and little expectation for a near-term rise in commodity prices.
The most dramatic fall—the Barometer's Employment & Labor Market indicators dropped 5.9% -- concerned planned hiring activity in 2010. Most areas of the Carolinas reported lower hiring plans, even though wages are expected to continue trending lower. Contractors projected increased hiring likely in 2011 and 2012.

Looking to the end of 2010 and into 2011, however, contractors expressed slightly stronger expectations that commodity prices would begin trending upward, particularly for petroleum-derivative products and fuels. In contrast, contractors expect stable equipment prices for the next year or two, even when business conditions begin improving in 2011.

State vs. State: Both Trend Downward

NC - Down 2.8%; SC - Down 1.8%

Contractors in North Carolina appeared more pessimistic about 2010, with diminished hiring expectations and a stronger expression that business activity will slow. South Carolina contractors, in contrast, reported a smaller drop in hiring plans, and expectations regarding construction volume remained largely unchanged from third quarter. While NC contractors reported a plentiful supply of skilled labor and falling wage rates, SC contractors expected more difficult hiring conditions, a limited supply of available skilled labor, and increased expectations that wage rates will rise in 2010 in spite of slowing business and economic activity in the state.

Regional Economic Highlights

Heartland NC: Down 3.2%

Heartland contractors reported easier credit conditions for both short-term work capital facilities and long-term equipment financing, countering reports of industry credit deprivation elsewhere in the Carolinas. They also reported a modest tightening in available skilled labor, although few are hiring. Also reported were modestly rising materials costs and significantly stronger expectations that costs will escalate in 2011.

Western NC: Up 1.6%

Contractors highlighted reduced credit availability and rising risk-adjusted financing costs. The downturn in financial conditions in the West may be temporary, however, as contractors expect some improvement in both the availability and cost of equipment financing by mid-year.

Construction materials costs were running counter to the labor cost trend; with contractors reporting modest increases in selected building materials and petroleum products. And in spite of sluggish construction activity, Western contractors reported rising heavy equipment purchases.

Eastern NC - Down 3.5%

Eastern contractors reported significantly better financial conditions, with greater availability of both short- and long-term loan dollars, falling risk-adjusted financing costs, and the expectation that easier credit conditions would continue throughout remaining 2010.

Construction materials costs were running counter to the labor cost trend in the fourth quarter, however, with contractors reporting modest increases in selected building materials and petroleum products. Heavy equipment purchases declined in the East.

Upstate and Lowcountry SC:

USC - Down 3.0%; LSC - Up 1.0%

Both SC regions reported slightly stronger construction volume, and shared expectations that industry conditions will improve slightly over the coming months. Also agreed upon was the expectation that business conditions have bottomed-out, and 2010 should bring at least marginal improvement to the commercial construction landscape.

Financial market conditions for long-term equipment financing needs strengthened noticeably in the Lowcountry, with contractors reporting easier borrowing terms from regional bankers. This trend was not matched in the Upstate, where contractors reported continuing difficulty in obtaining both short- and long-term financing. Although demand for heavy equipment remains lethargic in both the Upstate and Lowcountry, contractors reported modestly rising materials costs.

Highway and utility construction across the two regions also differed; in the Upstate, contractors reported sharply lower highway activity, while in the Lowcountry activity remained unchanged.

Carolinas AGC builds its 2,600 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 South Carolina is performed or supported by CAGC members. Visit CAGC at www.cagc.org.

Follow Carolinas AGC on Twitter! Carolinas AGC serves many different components of the Carolinas construction industry. Each is interested in different types of information and dialog :

SC Building Division: http://twitter.com/CAGCSCBldgDiv

NC Building Division: http://twitter.com/CAGCNCBldgDiv

NC Highway Division: http://twitter.com/CAGCNCHwyDiv

Utility Division: http://twitter.com/CAGCUtilityDiv

Subcontractor/Specialty Contractor Division: http://twitter.com/CAGCSubs

Safety & Health: http://twitter.com/CAGCsafety

Human Resources: http://twitter.com/CAGCHRCommittee

For additional information or names of local Barometer panelists contact:

Lori Tharp, Carolinas AGC (704) 372-1450, ext. 5227

[email protected]; www.cagc.org

SOURCE Carolinas Associated General Contractors