Credit availability runs dry in Lowcountry, construction down in Upstate

For the second quarter of 2009, the Carolinas AGC Construction Barometer dropped by 1.1%. The barometer’s modest decline was virtually all attributable to a weakening financial market for contractors.

Staff Report
Published Oct. 6, 2009

The construction market stats are provided by the Carolinas AGC, a chapter of the Associated General Contractors of America. Both S.C. barometer regions experienced a downturn in the second quarter, but the change in the Lowcountry was steeper (down 3.1%) than in the Upstate (down 0.8%).

In the Upstate, the barometer dropped as a result of a weakening demand for labor, a diminished appetite for new workers and a growing belief that business will continue slowing in the remaining months of 2009, the report said.

Lowcountry contractors reported no significant change in business activity or in demand for new construction workers. They did, however, report a sharp drop in the availability of credit to meet short-term working capital needs within the region, the report said. Both the cost and availability of short-term credit reflected a negative trend for the quarter, with financing costs up sharply and credit availability down at the same time.

In the Upstate, contractors noted a drop in the availability of working capital financing, but this drop wasn’t accompanied by a noticeable increase in borrowing costs. Like other Carolinas regions, contractors throughout South Carolina reported stable labor and equipment costs and falling materials costs through the first six months of 2009.

“The barometer’s modest decline was virtually all due to a weakening financial market for contractors,” the report said. “While the national financial press reports that business credit is once again available, Carolinas contractors reported some of the most difficult credit market conditions ever. If barometer panelists are correct in their assessment, the credit crunch is likely to get worse late in 2009 and into the early months of 2010.”

Both Carolinas experienced a modest drop for the second quarter of 2009, although the 1.5% drop in South Carolina was somewhat more pronounced than North Carolina’s 0.9% drop. This was primarily attributable to a larger contraction in business activity and a sharply deteriorating financial market in South Carolina.

“Panelists reported a slowing volume of loan approvals, tighter loan evaluation standards, and a general expectation that virtually all types of contractor-related borrowing requests — including short-term working capital loans, long-term equipment finance arrangements, commercial real estate financing, and project development loans — will be more rigorously evaluated by lenders over the next few years,” the report said.

There was a positive sign of improvement in the labor market, however. The downward trend in construction positions anticipated for 2010 is slowing from levels observed earlier in 2009.

“While it’s still negative, the magnitude of change from quarter to quarter is slowing significantly,” the report said. “Contractors also reported a small up tick in second-quarter business activity, pushing the Business and Economic Trends segment up by 3.7%”