Carolinas AGC Construction Barometer rising

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The Carolinas AGC Construction Barometerâ„¢ notched up 1% for third quarter 2010, continuing its upward movement for the third consecutive quarter. Still the Carolinas AGC numbers do not project a 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 report expecting 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.

Third quarter Barometer numbers for North Carolina showed a bit more growth than South Carolina’s (NC – Up 1.1%; SC – Up 0.9%)- 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.

One major theme dominated the NC Heartland’s Barometer results in third quarter: sharply stronger demand for labor projected for 2011 (Up 1.0%). 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.

Click Here to view third quarter Barometer results for Eastern NC, Western NC, Upstate SC and Lowcountry SC regional economic highlights.

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