Construction Barometer™ > Most Current Results > News Release - 1st Quarter 2008

For additional information or names of local panelists contact:
Lori Tharp, Associate Dir., Business Development, Carolinas AGC
(704) 372-1450, ext. 5227; ltharp@carolinasagc.org ; www.cagc.org

LONG-ANTICIPATED CONSTRUCTION DOWTURN HAS ARRIVED

August 2008 – Charlotte , NC- The Carolinas AGC Construction Barometer™ posted a 2.2% drop in first quarter 2008. In the 10-year history of the CAGC Barometer, it’s never experienced a quarter when every statistical indicator turned downward at the same time— the good news is, that record remains unbroken. But whew-- it was a really close call!
Nearly every Barometer statistic, with only a few minor exceptions, dropped, causing the index to post its worst showing ever at 2.36. Worse yet, it’s quite likely that we will break the all-time low record set in March 2000 sometime before the end of 2008. It’s a tough market out there.

Every category– the Employment and Labor series, the Business and Economic Trends segment, and the Financing Availability section– posted a drop for first quarter. In keeping with current expectations regarding industry activity, the downturn was more severe in the less-populated regions such as the Eastern and Western NC regions and SC’s Lowcountry area. It was less substantial in the urban Heartland NC and Upstate SC areas.

In most cases, deteriorating business volume, increasing concern about future activity, and growing contractor pessimism about the state of the economy led the list of negative statistical indicators driving the Barometer downward. The Business and Economic Trends segment dropped a whopping 11% on the qualitative side, and 3.3% on the quantitative side. Adding insult to injury, contractors reported rapidly rising overall construction and equipment costs in combination with slowing business activity.

The Barometer’s bright spot occurred in the construction labor market. Rapidly falling demand for labor, in combination with an inflow of new workers from other regions of the US led to continuing worker migration. Wages dropped a bit as an excess of workers competed to find jobs within the industry. 

Contractors reported that bankers are growing increasingly cautious in approving new business loans. However, the level of borrowing costs in most areas of the Carolinas have remained stable throughout the region for the first several months of 2008. This trend is expected to continue well into 2009.

Federal and state spending on the Carolinas highway infrastructure remains constant, but is expected to deteriorate in 2009 as tax revenues associated with gasoline sales plummet with falling demand for gas. Contractors reported rapidly escalating asphalt and other highway construction materials costs, again related to the rising cost of petroleum. These 2 trends combined signal that we could be on the verge of a crisis in road building activity in 2009 and 2010. At the very least, state and federal authorities will be forced to raise transportation-related taxes to gain sufficient revenue to accommodate the currently-planned level of highway maintenance activity.

State vs. State: Not Much Difference (NC - Down 2.3%; SC - Down 2.1% )

Construction slowed in North Carolina by 2.3% and in South Carolina by 2.1% from 2007 year end. In both cases the principal cause was a significant slowing of commercial construction activity in early 2008, rising materials and equipment costs facing contractors, and increasing contractor pessimism about expected business conditions in 2009. These particular trends were somewhat more evident in NC, with SC contractors reporting a bit more optimism. There was also a difference in labor conditions, with SC contractors expressing a stronger belief that labor will tighten in 2009, as opposed to NC contractors expecting good conditions to continue.
     
Heartland NC: Significantly Slower Activity (Down 2.1%)

In Heartland North Carolina, the only substantial differences from the other Carolinas regions in first quarter was a sharper drop in construction activity, and yet a stronger expectation that construction volume will stabilize in 2009. In other regions, this pattern was reversed.

Eastern NC and Western NC: Labor Costs Up in the West; Down in the East
(ENC - Down 3.1%; WNC - Down 2.2%)

Both the Eastern and Western regions of North Carolina experienced falling Barometer scores, but the drop in business activity was much stronger in the West. On the Qualitative side, business activity fell 11% for contractors in the western area, but a much smaller 2.5% in the East. Both regions reported similar materials and equipment cost increases, and rising expectations that business growth will slow in the coming year. Labor market trends diverged markedly; eastern contractors reported easier hiring conditions, falling wage rates, and believe good labor conditions will continue; western contractors reported rising wage rates in the skilled building trades. Financing conditions deteriorated modestly in both regions.

Upstate and Lowcountry SC: Business Ok in Upstate, So-So in Lowcountry
(USC - Down 1.6%; LSC - Down 3.2%)

Labor market differences characterize the 2 South Carolina regions. In the Upstate, contractors anticipate a modestly growing number of construction jobs on slightly stronger quarterly business activity. In contrast with this mild optimism in a difficult economic environment, Lowcountry contractors report no planned job growth in the industry, falling business volume, and expectations that 2009 will bring weaker commercial construction activity. At the same time, however, Lowcountry contractors report that the anticipated fall-off in 2009 construction activity will be less severe than they originally anticipated. 

In the Upstate, business activity rose in the first quarter, but not expected to continue throughout 2008 and into 2009. The uptick in regional hiring is a temporary condition as well. Financing in both South Carolina regions weakened for the first quarter on rising commercial borrowing costs, as bankers required increased compensation for risk in extending new loans to South Carolina contractors.

Carolinas AGC builds its 2,800 members’ businesses through workforce development, business development, profit management, and CompTrust AGC –a self-insured workers’ compensation trust for members. 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.

For a more detailed look at the Carolinas AGC Construction Barometer™ results for Quarter 4, 2006 visit www.cagc.org, Construction Market Stats. To participate as a Construction Barometer panelist, contact Lori Tharp at 704/372-1450 ext. 5227 or ltharp@carolinasagc.org.