Significant drop in architecture billings index

August 11, 2010

Beginning its third year of negative conditions, the Architecture Billings Index (ABI) had a drop of almost three points in January. As an economic indicator of construction activity, the ABI reflects an approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI rating was 42.5, down sharply from a revised reading of 45.4 in December. This score indicates a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 52.5, down more than seven points.

* Every January the AIA research department uses a procedure from the Department of Commerce that re-estimates ABI data based on seasonal patterns, resulting in a recalibration of recent figures.

"Projects are being delayed or cancelled because lending institutions are placing unusually stringent equity requirements on new developments. This is even happening to financially sound companies with strong credit ratings," said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. "This serious situation is being compounded by a skittish bond market, decreased tax revenues for publicly financed projects and declining property values - all which serve as deterrents for construction activity. Until these factors are resolved, the design and construction industry -- which accounts for roughly 10 percent of GDP and is facing unemployment figures in excess of 20 percent -- will continue to face deteriorating market conditions."

Key January ABI highlights:

Regional averages: Midwest (48.0), Northeast (45.7), South (41.32), West (40.5)
Sector index breakdown: multi-family residential (50.1), commercial / industrial (44.9), institutional (43.1), mixed practice (40.3)
Project inquiries index: 52.5

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. The regional and sector data is formulated using a three-month moving average.

         
 

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