Carolinas AGC Construction Barometer drops 0.8 percent

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The Carolinas AGC Construction Barometer™, reflecting first quarter 2011, shows very little change in the construction industry in both North Carolina and South Carolina. The aggregate Barometer score declined a modest 0.8 percent on slightly stronger business conditions observed across the first three months of 2011, offset by falling contractor expectations about future business conditions and rising wholesale prices.

The good news is construction volume increased throughout the Carolinas for the first three months of 2011, surpassing contractors’ expectations for the quarter and leading to a slight increase in labor demand. Given the substantial contraction in the construction labor market over the last few years, contractors reported difficulty in hiring skilled workers because so many have migrated to other industries. At the same time, contractors reported rising labor costs, particularly in the employee benefits area.

The slight uptick in reported business conditions also impacted financial market trends and demand for heavy construction equipment, with rising loan approvals, rising heavy equipment purchases, and greater spending for construction materials and basic inventory. On the Barometer’s quantitative side, first quarter 2011 turned out to be a bit better in almost every business category than contractors projected at year-end 2010.

Nevertheless first quarter’s business improvement isn’t carrying forward into the remaining months of 2011. In previous quarters, Barometer panelists had reported increased optimism for 2012 due to fewer contractors remaining in business and expectations of more work coming down the pipeline. However, panelists now believe that 2012’s business conditions may be a bit worse. They’re expecting modestly diminished business activity, a lower rate of equipment and inventory purchases, reduced hiring activity, and weaker demand for long-term credit toward the end of 2011 and into the early months of 2012.

Both North and South Carolina contractors reported stronger-than-anticipated first quarter business conditions, but the trend toward higher industry activity was stronger in North Carolina than in South Carolina. The stronger business growth has a downside, however, as North Carolina contractors reported significantly higher materials prices than South Carolina contractors. The source of rising business activity also differed between the two states: North Carolina reported stronger private-sector growth and relatively constant highway and utility construction activity; South Carolina reported weaker private-sector activity, but stronger highway and utility spending.

For the coming year, Barometer panelists in both states reported weakening demand for labor, and a rising concern for the quality and availability of skilled labor—a trend likely to continue into 2012. While diminished business activity is expected in 2012 in both states, the trend is significantly stronger in South Carolina. In the more populous urban regions of North Carolina, contractors expect better conditions in the near future, while the smaller, less urban areas of South Carolina expect a stronger slow-down.

Interest rates remain at historically low levels in both states, while contractors in North Carolina reported slightly stronger demand for both short- and long-term financing. In contrast, South Carolina contractors are seeing relatively constant demand for credit, but reported that commercial bankers are becoming less accommodating in granting new contractor borrowing requests. Read More.

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