The most recent Carolinas Associated General Contractors (AGC) Construction Barometer, which tracks quantitative data as well as opinion among contractors and industry allies, remains at 2.97, unchanged from the fourth quarter of 2002. However, a look inside the quarterly numbers indicates that the Carolinas construction industry may have turned the corner.
• Strengthened contractor expectations for improved business conditions by mid-2003 along with a significant advance in anticipated highway and utility spending in both Carolinas drove a hefty gain in one barometer component. The quantitative data in the business and economic trends moved up sharply in the first quarter 2003 report, posting a 13.3-percent gain from fourth quarter 2002.
• The general level of unemployment within the Carolinas labor market remained virtually unchanged from fourth quarter 2002 to first quarter 2003, stemming the tide of job losses evident in previous reports.
“It’s very likely that we’ve turned the corner on the 2001-02 recession in commercial construction, and we’re beginning to see better business conditions throughout the nonresidential construction industry,” said Tony Plath, UNCC associate professor of finance and developer of the Carolinas AGC Barometer. “It’s too early to call the growth trend emerging from the barometer a genuine turning point, but it is a growth trend and it points to better business conditions in coming quarters.”
According to Plath, the Barometer points to slow, steady improvement in the construction industry with a much better outlook than it has had at almost any point in the last five or six quarters. He said job losses in other sectors of the economy, combined with contractors’ increasing difficulty in finding qualified workers, and a slight deterioration in financing availability are only minor negatives in the overall economic scheme.
Comparing North and South
North Carolina’s barometer rose 1.5 percent to 2.96 percent, while South Carolina’s barometer declined to 3, down 3.1 percent from fourth quarter 2002. North Carolina’s business and economic trends series of the quantitative index moved up 22.6 percent, while South Carolina posted a modest 2.7-percent decline in this series.
Rising North Carolina Department of Transportation (NCDOT) spending is at least partially responsible for the strength of anticipated business improvement in North Carolina.
Heartland North Carolina holds the most positive outlook, posting a 30.1-percent increase in the business and economic trend segment of the quantitative index. Contractors in this region anticipate greatly increased business activity in coming quarters. Recent announcements of public works projects in the region, increased NCDOT spending and several large private sector projects in the Charlotte area support this upbeat attitude.
Eastern and western North Carolina are both moderately down, .2 percent and 3.8 percent, respectively. Business expectations are slightly improved in eastern North Carolina, but this was offset by lower labor availability and expectations of labor cost increases. In western North Carolina, financing activity fell off 4.6 percent, indicating a decreased willingness to borrow for business expansion.
In Lowcountry South Carolina, the barometer tumbled 8.4 percent, pushed lower by weaker anticipated business activity, a softening in the labor market and weaker credit conditions. Upstate South Carolina’s barometer eased down .7 percent. Stronger demand for commercial credit and increased South Carolina Department of Transportation spending in the region points toward better days ahead in the Upcountry.
Heartland NC: Piedmont Contractors Are All Smiles These Days — Up 30.1 Percent
The I-85 corridor represents the most upbeat region in the Carolinas for the first quarter of 2003, posting a huge 30.1-percent advance in the business and economic trends segment of the quantitative index. The source of all this Piedmont optimism is a significant gain in the volume of business activity expected by Heartland contractors this year. This trend is supported by a number of public works projects recently announced in the region, a strong uptick in NCDOT spending activity and a variety of marquee private sector projects coming on-line in the greater Charlotte region.
Given this expected surge in commercial construction activity in the coming months, it’s logical that Heartland contractors report modestly tighter labor market conditions and a heightened demand for skilled labor. Equally telling, however, contractors in the region anticipate no labor cost inflation over the coming months, signaling that they are aware of the immigration of skilled labor into the market in search of new work. Finally, regional contractors report slightly greater use of commercial credit lines, another sign that business activity in the region is about to pick up momentum in a substantive way.
Eastern NC: Stronger Business Conditions, But Weaker Labor Availability — Down .2 Percent
At first glance, it looks like there’s nothing new to report in the eastern region of North Carolina, but the aggregate barometer statistic obscures some interesting developments. First, business expectations are modestly improved among the region’s commercial contractors, with the business and economic trends segment of the quantitative index rising 8.9 percent for the quarter. Stronger business conditions, however, were completely offset by diminished labor availability within the region, as the employment and labor segment of the qualitative index fell 9.8 percent.
In addition, contractors report an expectation that labor costs will rise modestly in the future, a trend that stands in contrast with the region’s overall unemployment rate that remains unchanged from the fourth quarter of 2002.
Western NC: Contractors Post Mixed Results — Down 3.8 Percent
The western North Carolina region looks much like the eastern region for the first quarter of 2003, with a modest uptick in the volume of anticipated business activity more than offset by diminished labor market conditions in the form of a reduction in skilled labor availability.
In western North Carolina’s case, however, contractors report current labor availability in the region is fine, but they anticipate encountering labor shortages later in the year. The quantitative unemployment data, in contrast, paint a more optimistic picture of labor availability in showing virtually no change in the level of aggregate unemployment in the western region.
In spite of cautious optimism regarding future business conditions, regional contractors report a diminished willingness to borrow money for business expansion. While financing activity elsewhere in North Carolina was on the rise in the early months of 2003, up 1.7 percent in eastern North Carolina and 3 percent in Heartland, financing activity fell 4.6 percent in the first quarter in western section of the state.
Upstate and Lowcountry SC: Upstate Follows NC Business Trends, Not the Same for Lowcountry — USC is Down .7 percent; LSC is Down 8.4 percent
Similar to recent economic history observed across the barometer, the Upstate of South Carolina followed closely with western and eastern North Carolina in reporting greater optimism regarding future business conditions, slightly weaker availability of skilled labor and a general level of unemployment unchanged from the fourth quarter of 2003. In keeping with these statistics, Upstate contractors reported slightly stronger demand for commercial credit and a strong uptick in the value of SCDOT spending in the region.
In contrast with this trend toward improving business conditions, the Lowcountry reported significantly weaker anticipated business activity — down 10.4 percent — a substantial softening in the labor market — down 14.3 percent — and much weaker credit market conditions in the region — down 15 percent. This pessimistic business outlook in the Lowcountry caused the region’s overall barometer score to fall by 8.4 percent, representing the largest percentage decline posted within the Carolinas for the first quarter of 2003.
For more information, visit www.cagc.org.