Carolinas AGC Construction Barometer(TM) Improves a Degree
CHARLOTTE, N.C., Dec. 29, 2010
CHARLOTTE, N.C., Dec. 29, 2010 /PRNewswire-USNewswire/ --While the Carolinas AGC Construction Barometer™ notched up 1% for third quarter 2010, continuing its upward movement for the third consecutive quarter, there's still simply no clear trend out of the recession. Values that strengthened a bit in second quarter deteriorated somewhat in third quarter, while variables that fell in second quarter strengthened modestly in the third.
Contractors do appear to be growing cautiously more optimistic about 2011, reporting they expect stable-to-modestly improving business conditions over the coming year. Quarter three's construction labor market showed a bit stronger demand for skilled labor and a small increase in the number of anticipated new positions and modestly higher labor costs. However, this growth didn't push construction unemployment down.
Contractors also reported a degree of materials and equipment cost inflation. While they don't expect a sustainable inflationary trend, there's a heightened level of concern that unexpected materials and equipment cost inflation could appear, given current Federal Reserve policy to continue inflating the U.S. money supply and rising rates of global commercial construction growth, particularly in India and China. In combination, these trends create a particularly volatile and uncertain environment for materials and equipment cost inflation.
Government stimulus spending, particularly in the highway and utility segment, disappeared in third quarter, as did highway and utility spending at the state and municipal levels. Practically all government units in the Carolinas struggled with falling revenues, anticipated budget shortfalls for 2011, and reduced ability to fund new commercial projects.
In the financing arena, the Barometer's metrics showed virtually no change from the previous quarter. Interest rates remain at all-time lows, yet financing activity remains scant. While it seems area bankers might be growing a bit friendlier, contractor borrowing activity remains limited, and requests for new loans aren't expected to accelerate much in 2011.
North Carolina vs. South Carolina: Once Again, Both Show Similar Results
(NC - Up 1.1%; SC - Up 0.9%)
Third quarter Barometer numbers for North Carolina showed a bit more growth than South Carolina's—a flip-flop from the previous quarter. Both states showed rising contractor optimism about the strength of the industry in 2011, stable materials and equipment costs, and modest growth in industry hiring. The uptick in labor demand was a bit larger in North Carolina, as was the increase in business activity. The downward trend in highway and utility spending was more pronounced in South Carolina, although North Carolina felt it too. Heavy equipment purchases rose modestly in North Carolina, while they trended downward in South Carolina. The differential trend was also reflected in credit conditions, where financing conditions eased noticeably in North Carolina while tightening a bit in South Carolina.
Regional Economic Highlights
Heartland NC: Hiring Activity Rises Again (Up 1.0%)
One major theme dominated the Heartland's Barometer results in third quarter: sharply stronger demand for labor projected for 2011. While the uptick isn't the strong surge we once knew, the intensity of the increase in planned hiring is notable given the present economy. This is the second quarter in a row contractors have projected rising labor demand for 2011, and the first back-to-back increase in projected hiring we've seen in commercial construction in at least two years.
Heartland contractors also reported modestly stronger construction activity in third quarter, a short burst of construction materials price inflation in the petroleum and metallic commodities sectors, and improving lender attitudes with respect to short- and long-term borrowing requests. The inflation trend is not anticipated to last into 2011, as Heartland panelists expect stable-to-falling construction materials prices throughout the new year.
The growing contractor pessimism reported in last quarter's Barometer was replaced in the third quarter with rising optimism in both the Eastern and Western regions of North Carolina. Contractors reported modestly slower construction activity-- although very little increased demand for labor-- but also reported rising expectations that business will swell in 2011. As a consequence, wage rates and overall labor costs remain flat-to-falling as we approach the end of 2010. This trend mirrors materials and equipment costs, which were also reported to be falling modestly.
Highway and utility spending for the quarter dropped sharply in the Eastern region. While credit availability and banker attitudes improved significantly in the East, Eastern contractors foresee virtually no increase in equipment and materials costs in the first six months of 2011.
Western NC: Contractors Grow Cautiously Optimistic (Up 5.0%)
Western NC contractors reported markedly stronger optimism in third quarter, a reversal of previous quarters' pessimism. Contractors reported modestly slower construction activity, with very little increased demand for labor or change in labor costs, but reported rising expectations that business will swell in 2011. Materials and equipment costs were also reported to be falling modestly.
Highway and utility spending remained fairly stable in the Western region, and credit availability and banker attitudes strengthened modestly. Western contractors are growing more concerned about rising equipment and materials costs in the coming months, and as a consequence reported stronger demand for both materials inventory and heavy equipment, hoping to stock up now in anticipation of higher prices in spring of 2011.
Upstate SC: Continued Optimism (Up 2.7%)
Third quarter Barometer results for the SC Upstate mirrored trends reported in the NC Heartland: rising contractor optimism regarding future business conditions, strengthening demand for labor, and modestly stronger business activity in the face of sharply weaker highway and utility spending. The decline in public construction was a bit more noticeable in the Upstate though, as highway spending plummeted in third quarter and is expected to continue into 2011. Unlike NC, Upstate contractors reported falling construction wages and increased availability of skilled labor.
Lowcountry SC: Growing Pessimism (Down 3.4%)
While Upstate contractors grow cautiously more optimistic about 2011, Lowcountry contractors reported precisely the opposite trend. They reported significantly weaker demand for skilled labor in 2011, rising labor costs and wage rates, and increasing pessimism about the state of public construction projects anticipated for the new year. Given these weakening conditions, contractors in the Lowcountry reported stable-to-falling equipment and materials costs for third quarter, and growing expectations that overall construction costs will remain stable for several months into 2011.
Carolinas AGC builds its 2,200 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.
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