by Calculated Risk on 3/19/2014 09:43:00 AM

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

From AIA: Architecture Billings Index Shows Slight Improvement

After starting out the year on a positive note, there was another minor increase in the Architecture Billings Index (ABI) last month. 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 February ABI score was 50.7, up slightly from a mark of 50.4 in January. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.8, down from the reading of 58.5 the previous month.

“The unusually severe weather conditions in many parts of the country have obviously held back both design and construction activity,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The March and April readings will likely be a better indication of the underlying health of the design and construction markets. We are hearing reports of projects that had been previously shelved for extended periods of time coming back online as the economy improves.”

Regional averages: South (52.8),West (50.5), Northeast (48.3), Midwest (47.6) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.7 in February, up from 50.4 in January. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion during 16 of the last 19 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.  Even when positive, this index was not as strong as during the '90s - or during the bubble years of 2004 through 2006 - because the vacancy rates are still high for many CRE sectors.  However, the readings over the last year and a half suggest some increase in CRE investment in 2014.