The Carolinas AGC Construction Barometer™ recently indicated that despite relatively stable construction conditions in the Carolinas, contractors throughout the Carolinas are deeply concerned about long-term cost increases. The Barometer’s 2.2 percent fall in fourth quarter 2010 was mainly due to fears of construction inflation likely arising from concerns about food and energy price hikes. However the Federal Reserve recently reported that these are probably temporary.
While some areas of construction (public works, DOT spending) are likely to decline in 2011, Barometer panelists reported no major decline in anticipated business. Business is likely to remain slow for the majority of 2011, rise moderately toward year-end, and accelerate more briskly in 2012.
Anticipating a slow-but-stable 2011, panelists reported a drop in planned heavy equipment purchases and rentals, a lesser appetite for commercial credit, and stable demand for skilled labor. Consistent with fears of rising equipment and materials costs, panelists also reported modestly rising wage rates and employee benefits costs. Construction employment will likely remain flat throughout 2011.
In the financing arena, the availability of long-term commercial financing remained unchanged. Short-term credit availability for inventory and accounts receivable financing edged lower though, as regional bankers showed little interest in financing the run-up in materials costs. Panelists reported they expect this trend to continue throughout 2011.
Contractors noted sharply stronger expectations that borrowing costs will rise, as bankers adjust the risk premiums they charge contractors. While interest rates are expected to remain at record low levels throughout most of 2011, contractors aren’t likely to see much incremental benefit from them, as bankers grow increasingly wary of financing inflation-driven materials cost increases. Read More.