Commercial Sector Finds Crystal Ball in ABI
Somewhere between nine and 12 months from the time architects start billing on projects the construction spending for those projects begins. So recently when the Architectural Billings Index (ABI) slowed, those who follow these things began predicting a slow down in commercial construction. These numbers are economic indicators of construction activity as reported by the American Institute of Architects (AIA). Scores above 50 signal increased construction activity.
The May billings of 55.0 was the second highest of the year after January’s 57.9. Then there was June’s spike of 59 followed by July’s record of almost 60. But the August number took the biggest drop since September of ‘06 to 53.9.
AIA’s Chief Economist Kermit Baker, PhD, Hon. AIA, was optimistic that this isn’t signaling a dry-up of non-residential construction saying it was characteristic for these numbers to level off after consecutive months of high numbers. He did allude to a potential link with the sub-prime mortgage debacle saying a tighter credit market could be making it more difficult for non-residential projects to get funding.
Regional and sector breakdowns can be telling for where you operate. For example, if you are in the northeast that’s where the index was highest in August reporting a 61.2, while the Midwest was the lowest with 52.2. Commercial and industrial topped the charts at 65 but multi-family and mixed practice were losers at 48.7.
So if you are building, or involved in building, mixed practice and multi-family in the Midwest there could be a bigger slowdown coming your way about May. It wouldn’t hurt to begin diversifying and even exploring other options ahead of time. This doesn’t necessarily mean that potential slowdown will be a long one since the ABI September number might be up. No matter how you look at this type of forecasting you have to admit that anytime you can get a glimpse of things to come it can at least help you to remember that things are changing all the time. And just being aware of change can make all the difference.
