Commercial construction gains continue to offset housing shortfall

Volatility seen in regional markets
August 11, 2010

Following housing construction numbers from the Department of Commerce that dropped to their lowest level in over six years, the Architecture Billings Index (ABI), a leading economic indicator of construction activity, continued along the path of modest growth in October. Sustained demand for nonresidential projects should continue to offset the lagging housing market’s effect on the overall economy, and future growth in construction activity will come primarily from the commercial / industrial and institutional markets. There is an approximate nine to twelve month lag time between architecture billings and construction spending, projecting a healthy outlook for the nonresidential construction market throughout 2007.The American Institute of Architects (AIA) reported the October ABI rating was 51.1 (any score above 50 indicates an increase in billings), and inquiries for new projects was 62.7.

“These figures are consistent with continued growth in key nonresidential construction sectors,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Regional readings were unusually volatile in October. Firms in the Midwest had been reporting weakening conditions in recent months; however, the October score rebounded to its strongest pace of growth since the first quarter of the year. Firms in the South and West reported continued growth, but the pace of growth was down from recent months. Finally, firms in the Northeast reported only their second decline in billings since late 2003.”

Key October ABI highlights:

 

Regional averages: Midwest (51.5), South (51.3), West (52.2), Northeast (47.1)Sector index breakdown: commercial / industrial (55.6), institutional (52.3), mixed (49.4), residential (42.5)Billings inquiries index: 62.7 

JP Morgan Business and Professional Services Analyst, Michael Fox said, “the continued strength in the ABI rating and the inquiries for new projects rating reflects very positively for growth prospects for nonresidential construction and is consistent with our positive view on companies in the reprographics industry over the next 12 to 24 months, as that industry is highly correlated to growth in nonresidential construction.”

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 nine to twelve 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.

         
 

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