Best Year in nonresidential since 2000 expected to offset slowing residential market

Architecture Billings Index was Positive Every Month in 2005
August 11, 2010

Washington, D.C. – January 19, 2006 – The American Institute of Architects (AIA) reported that billings at U.S. architecture firms were positive every month in 2005 for the first time since 2000, pointing towards 2006 being the best year for nonresidential construction in six years.  With construction accounting for nine percent of GDP, increased nonresidential activity will ease the effects of a projected slowdown in the residential market.  The Architecture Billings Index (ABI), a leading economic indicator of nonresidential construction activity, had a rating of 50.4 in December 2005 (any score above 50 indicates a positive score), compared to 58.4 for November 2005 and 47.8 for December 2004

"Considering the sluggish consumer spending coupled with the softening residential sector, nonresidential construction should be viewed as a key driver for the overall economy in 2006,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA.  “The nonresidential upturn should continue into 2007 and can be attributed to pent up demand for new projects that weren’t able to be undertaken in recent years

All major nonresidential sectors to benefit from improved business conditions

  • The significant upturn in demand for office space and hotel facilities will drive the commercial market

  • Educational and healthcare projects are expected to see substantial growth this year, fueling the institutional sector

  • An up tick in manufacturing activity will drive the need for more industrial facilities

  • Post-hurricane rebuilding is projected to accelerate in mid-2006 and continue for several years

  • The December inquiry index for new projects was 62.7 showing continued growth in new design projects.

Robert W. Baird & Co. senior industrial analyst, Michael A. Schneider, CFA, said, “We believe the AIA's forecast for accelerating growth in nonresidential construction activity in 2006 bodes well for construction-related companies.  Indeed, the bullish outlook is consistent with indications of strengthening demand from the construction services companies in our coverage universe.  Furthermore, our contacts concur that the rebuilding process in the aftermath of recent hurricanes should enhance the nascent construction cycle.”

Possible challenges to continued growth

  • Rising short-term interest rates may lead to expansion slowdown

  • Decreased availability and higher costs for building materials due to strong international construction activity

  • Supply disruptions for key construction materials and increased transportation costs caused by higher oil prices.

CIBC World Markets senior industrial multi-industry analyst, Robert P. McCarthy, CFA, said, “The AIA's forecast for accelerating upcycle in nonresidential construction activity for ’06-’07 has positive implications in particular for electrical equipment suppliers. Recent channel checks with these suppliers indicate that backlogs tied to nonresidential construction are firming for the back half of 2006, particularly in lighting fixtures.  Additionally, recent pricing actions in the lighting fixture space appear to be gaining traction, indicative of a solid, potentially accelerating demand environment.”

Information contained in this news release includes conclusions from the recent AIA Consensus Construction Forecast Panel that is released twice a year.  For the complete report, click here: http://www.aia.org/aiarchitect/thisweek06/0113/0113econ_consensus.cfm

About the AIA Architecture

Billings

Index

The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics & Market Research Group.  Based on a comparison of data compiled since the survey’s inception in 1995 with figures from the Department of Commerce on Construction Put in Place, the findings amount to a leading economic indicator that provides an approximately six month glimpse into the future of nonresidential construction activity.  The diffusion indexes contained in the full report are derived from a monthly survey sent to a panel of AIA member-owned firms.  Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended.  According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month.

About The American Institute of Architects

For almost 150 years, members of The American Institute of Architects have worked with each other and their communities to create more valuable, healthy, secure, and sustainable buildings and cityscapes.  AIA members have access to the right people, knowledge, and tools to create better design, and through such resources and access, they help clients and communities make their visions real.   www.aia.org

         
 

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