A signal for better days ahead.
Speaking at last month’s Mechanical Contractors Association of America convention in Orlando, economist Anirban Basu pointed to the Architecture Billings Index as a favorite indicator of nonresidential construction activity. Based on their billings, architects have been busy for four of the last six months. This design activity will translate into actual construction in nine to 12 months.
Basu said the ABI also was moving into positive territory a year earlier until last summer’s federal deficit ceiling debate in Congress made building owners worry about a double-dip recession. Once the country made it through that period, the ABI began to climb again.
The American Institute of Architects releases the ABI each month based on its monthly On-The-Boards Survey of principals and partners at architectural firms. An ABI higher than 50 indicates that architects’ billings are increasing.
In February, the ABI reached 51, which followed a score of 50.9 in January. Although the scores don’t surpass the 50-point threshold by much, AIA shares Basu’s optimism.
“This is more good news for the design and construction industry that continues to see improving business conditions,” AIA Chief Economist Kermit Baker said in March. “The factors that are preventing a more accelerated recovery are persistent caution from clients to move ahead with new projects and a continued difficulty in accessing financing for projects that developers have decided to pursue.”
On a regional basis, the Midwest had the highest ABI score in February at 56.0, followed by the South at 51.3 and Northeast at 51.0. Only the West struggled below 50 with an ABI of 45.6. By construction sector, commercial/industrial led the way with 55.1 followed by multifamily residential at 53.3 and institutional at 50.3. More good news came in AIA’s new projects inquiry index, which reached 63.4 in February. That’s up from 61.2 in January, reaching its highest level since July 2007.
Quoting other industry figures, Basu told MCAA members that nonresidential construction put-in-place was down 21.2% from $719.0 billion in October 2008 to $566.4 billion in January 2012. Even so, he noted, construction spending in several sectors showed growth in January from January 2011.
Spending in manufacturing led the way with a 38.3% increase followed by power (24.4%), health care (9.7%), public safety (8.2%), commercial (7.8%) and educational (5.8%). Showing marginal gains were amusement and recreation (1.7%), office buildings (0.6%), communication (0.5%), and sewage and waste disposal (0.1%). On the negative side of the ledger, spending on religious buildings was down 23.1% from a year ago, followed by conservation and development (-17.8%), transportation (-6.5%), water supply (-5.0%) and lodging (-2.4%).
The construction industry even shared – albeit in a small way – the economy’s growth in jobs over the past year. The nation gained 2.02 million jobs between February 2011 and February 2012. Construction gained 65,000 jobs during this period.
Noting that construction tends to lag the economy, Basu said that broad economic growth will bring growth in construction too. While he predicts 2.3% growth in the nation’s gross domestic product, he sees better times ahead.
“Later this decade, there will be some huge years in the U.S. economy,” Basu said. “A lot of money is still on the sidelines. Low mortgage rates will lead to construction.”
Several factors still could derail a strong recovery, he cautioned. In fact, the biggest threats are political, not economic. That’s something we all should keep in mind – and act to do something about – during a critical election year.