Wednesday, November 20, 2013

AIA: "Architecture Billings Index Slows Down" in October

by Bill McBride on 11/20/2013 04:29:00 PM

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

From AIA: Architecture Billings Index Slows Down

Following three months of accelerating demand for design services, the Architecture Billings Index (ABI) reflected a somewhat slower pace of growth in October. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the October ABI score was 51.6, down from a mark of 54.3 in September. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.5, up from the reading of 58.6 the previous month.

“There continues to be a lot of uncertainty surrounding the overall U.S. economic outlook and therefore in the demand for nonresidential facilities, which often translates into slower progress on new building projects,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “That is particularly true when you factor in the federal government shutdown that delayed many projects that were in the planning or design phases.”
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 51.6 in October, down from 54.3 in September. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion in 13 of the last 14 months.

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 index is not as strong as during the '90s - or during the bubble years of 2004 through 2006 - but the increases in this index over the past year suggest some increase in CRE investment in 2014.