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Washington, D.C., August 23, 2006 — A modest increase in the July Architecture Billings Index (ABI), a leading economic indicator of nonresidential construction activity, counters the previous two months that showed slightly negative scores. The uptick can be attributed to growth at commercial / industrial architecture firms. The latest figures continue the pattern that suggests a strong outlook in the commercial construction market well into 2007, based on the approximate six to nine month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the July ABI rating was 51.8 (any score above 50 indicates an increase in billings), just above the 49.2 mark in June.
“For the last few months the index has been close to the break-even point on both the positive and negative side,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “We will continue to monitor for signs of a pending design slowdown, but for now these figures are in line with our long range outlook for a healthy nonresidential sector.”
Key July ABI highlights:
- Regional averages: West (52.7), Northeast (51.6), South (51.4), Midwest (48.2)
- Sector index breakdown: commercial / industrial (58.4), institutional (52.8), residential (46.8), mixed (45.2)
- Billings inquiries index: 64.0, up from the 56.7 score in June “The July data is quite encouraging with respect to the health and sustainability of the nonresidential construction upcycle that is so important to many of our companies,” said Banc of America Securities Electrical Equipment/Multi-industry Senior Equity Research Analyst Robert McCarthy, CFA. “In particular, we find the strong rebound in overall billing inquiries to above 60 an important positive data point as it is a vital leading indicator for continued nonresidential construction strength moving into 2007.”
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.
Questions looming in the economic outlook
The optimism of the AIA Consensus Forecast Panel comes despite recent evidence of softening in the broader economy. The Federal Reserve Board has raised short-term interest rates by four percentage points since 2004, which has cooled off the stock market and other interest-sensitive sectors of the economy, such as housing and auto sales. Overall inflation in consumer and producer prices has begun to increase while it continues for several key building commodities.
For the 12 months ending in May 2006, prices of materials and components for construction activity increased 7.8 percent, slightly up from the 6.1 percent for the 2005 calendar year as a whole, but down from the 10.1 percent increase in 2004. For some construction commodities, the increases over the past 12 months have been breathtaking: almost 87 percent for copper and brass mill products, over 26 percent for gypsum products, almost 13 percent for aluminum mill products, over 11 percent concrete products, and significant increases for virtually all petroleum-based construction materials (asphalt, plastic construction products, and plastic composites).
There are concerns over the broader economy that extend beyond inflation. Payroll employment growth has slowed in recent months. After increasing by an average of 165,000 a month during 2005, growth accelerated to 176,000 during the first quarter of the year. However, so far in the second quarter, payroll growth has slowed to an average of 100,000 per month. Payrolls at construction firms have followed a similar trend. Average monthly increases were about 25,000 for 2005 and kept at that level through the first quarter of this year. So far, second quarter increases have averaged less than 10,000 additional jobs per month.
Slower job growth and rising oil prices have taken their toll on the consumer’s sense of well-being. Consumer sentiment scores as measured by the University of Michigan trended down throughout 2005 before rebounding slightly at the end of 2005 and through the first quarter of this year. However, second quarter figures eased again, with average readings back to where they were during the fourth quarter of last year.
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