After three months of substantial growth, the Architecture Billings Index (ABI) in August receded to a figure more in line with the scores seen throughout the spring. As an economic indicator of construction activity, the ABI shows an approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI rating was 53.9, down significantly from the near record 60.0 in July (any score above 50 indicates an increase in billings), and inquiries for new projects was 60.5. This is the biggest drop since September 2006 when the Index dropped from 59.4 to 52.1.
“This really shouldn’t trigger any concern that demand for nonresidential construction projects will dry up,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “It’s actually characteristic that after consecutive months of very high numbers things level off a bit and return to the more temperate positive conditions that we have seen over most of the year.”
Baker continued, “The apprehension in the industry is based around reports that growing default rates among subprime borrowers in the residential market has made credit more difficult to secure for nonresidential construction projects.”
Key August ABI highlights:
Regional averages: Northeast (61.2), West (58.8), South (56.0), Midwest (52.2)Sector index breakdown: commercial / industrial (65.0), institutional (51.6), mixed practice (58.2), multi-family residential (48.7)Billings inquiries index: 60.5
UBS Investment Bank managing director, equity research Heather Bellini added, “The decline in the ABI is to be expected give the concern in the market of late. All in, however, we believe the market dynamics for industry leading CAD software vendors remains strong, especially given the long-tailed cycle of 2D to 3D migration.”