Wednesday, November 19, 2008

Architecture Billings Index Drops to All Time Low

by Bill McBride on 11/19/2008 01:19:00 PM

The American Institute of Architects reports: Architecture Billings Index Drops to All Time Low

AIA Architecture Billing Index Click on graph for larger image in new window.

On the heels of a six-point drop in September, the Architecture Billings Index (ABI) plummeted to its lowest level since the survey began in 1995. As a leading 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 October ABI rating was 36.2, down significantly from the 41.4 mark in September (any score above 50 indicates an increase in billings). The inquiries for new projects score was 39.9, also a historic low point.

“Until recently, the institutional sector had been somewhat insulated from the deteriorating conditions affecting the commercial and residential markets,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Now we are seeing that governments and nonprofit agencies are having difficulties getting bonds approved to finance large scale education and healthcare facilities, furthering the weak conditions across the construction industry.”
emphasis added
This is the 2nd leg down for the index this year. There is "an approximate nine to twelve month lag time between architecture billings and construction spending", so we should expect the first decline in architecture billing to impact non-residential structure investment in Q4 2008, and a further downturn in non-residential construction activity next summer.