Wednesday, June 20, 2012

AIA: Architecture Billings Index declines sharply in May

by Bill McBride on 6/20/2012 11:42:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Substantial Drop in Architecture Billings Index

Following the first negative reading in five months, the Architecture Billings Index (ABI) has had a significant drop in May. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 45.8, following a mark of 48.4 in April. This score reflects a sharp decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 54.0, down slightly from mark of 54.4 the previous month.

“For the second year in a row, we’re seeing declines in springtime design activity after a healthy first quarter. Given the ongoing uncertainly in the economic outlook, particularly the weak job growth numbers in recent months, this should be an alarm bell going off for the design and construction industry,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “The commercial/industrial sector is the only one recording gains in design activity at present, and even this sector has slowed significantly. Construction forecasters will have to reassess what conditions will look like moving forward.”
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 45.8 in May, the lowest since July of last year. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further weakness in CRE investment (it will be some time before investment in offices and malls increases).
All current Commercial Real Estate graphs