Carolinas AGC Construction Barometerâ„¢ Reports Slow But Stable Business, Rising Inflation Fears

CHARLOTTE, N.C., April 5, 2011 /PRNewswire-USNewswire/ -- 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, although the Federal Reserve recently reported that these are probably temporary.

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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.

State vs. State: Similar, but NC Contractors More Pessimistic (NC - Down 2.7%; SC - Down 1.2% )

Usually, South Carolina tends to exhibit greater Barometer volatility over time; year-end 2010 numbers were the opposite. Both states showed stable construction volume, rising concern over construction-related inflation, and growing dissatisfaction with the quality of available skilled labor. In North Carolina though, there were greater concerns over rising labor, materials, and equipment costs; financing heavy equipment; tighter labor conditions with higher wage and benefit costs; and reduced spending on highway, utility, and general public works projects.

While both states envisioned stable labor demand but tighter labor market conditions ahead, South Carolina contractors reported labor costs rising more rapidly than did North Carolina contractors. Credit market conditions also differed modestly; South Carolina contractors reported rising availability of long-term credit while North Carolina contractors reported little change. Contractors in both states, however, agreed the late-year short-term credit availability drop is a change likely to worsen in 2011 on rising construction materials costs.

Regional Economic Highlights

Heartland NC: Good News, Bad News... (Down 2.1%)

While the overall Barometer score in the Heartland dipped 2.1 percent, this downturn masks two separate and opposing trends. Contractor optimism regarding anticipated construction activity throughout 2011 rose sharply from earlier levels, as local panelists expect 2011 to be a stronger year than originally forecast, with rising demand for labor expected later in the year and new public and private work coming. However, Heartland contractors reported sharply stronger expectations for rising construction costs, including labor, materials and inventory, and heavy equipment.