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Current events and commentary regarding the construction industry. Opinions are my own.
Justin Reginato, Ph.D.
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Architecture Billings Back in Black, Returns to Levels Not Seen in a Year

3/26/2021

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Back in black
I hit the sack
I've been too long, I'm glad to be back
Yes, I'm let loose
From the noose
That's kept me hanging about
I've been looking at the sky
'Cause it's gettin' me high
Forget the hearse 'cause I never die
I got nine lives
Cat's eyes
Abusin' every one of them and running wild
-AC/DC "Back in Black"

Thanks for tolerating my trip back to high school head banging. Speaking of peaking, the American Institute of Architects' Architecture Billings Index (ABI) is back to where it was in February 2020 and has surged into positive territory, clocking a 53.3 for February 2021. A value greater than 50 means that architecture billings are increasing; conversely, any value less than 50 means billings are decreasing. The ABI is a leading indicator of commercial building construction by approximately nine to 12 months. Whew...we needed this little ray of sunshine.
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To be clear, we are not totally our of the woods as there are still areas of weakness (sub 50 results), as evidenced by the regional data:
  • Northeast: 46.9 (up sharply from 41.9 in January)
  • South: 52.4 (up from 47.4 last month and the sole 50+ region)
  • Midwest: 49.5 (also up sharply from last month's 42.2; the biggest absolute gainer)
  • West: 49.5 (another big jump from January's 42.8)
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For the industry sector breakdown, the balance between advancers and decliners was split 50/50:
  • Multi-family Residential: 48.3 (up from 44.4 in January)
  • Commercial/Industrial: 50.5 (up from 44.3 last month)
  • Mixed Practice: 52.5 (up from 47.9 in January)
  • Institutional: 47.8 (up from January's 39.9 and the biggest absolute gainer)
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Project inquiries have been above 50 since August, but they pierced the 60 level in February.
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All in all, pretty good news from the billings front, likely supported by larger positive macro trends (vaccination roll out, stimulus, Federal Reserve holding steady, and on and on...). It is nice to finally have some good news. That said, the construction industry still has some headwinds to watch (commodity prices and labor constraints to name but two). Let's worry about that next week. For now, let's just enjoy this month's ABI.
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January Architectural Billings Slow Declines

3/1/2021

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That title is a Jedi mind trick...yes, the American Institute of Architects' Architecture Billings Index (ABI) did slow its declines from last month, but they are still declining. The January 2021 ABI figure came in last week at 44.9, up from 42.3 in December. Bigger is better, however values less than 50 mean that billings are decreasing. The last time the ABA was above 50, meaning they were increasing, was February of last year (you know, before COVID put the United States into a state of chaos). Next month ought to be interesting. The ABI serves as an approximately nine to 12-month leading indicator for commercial building construction activity.
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The ABI is way off its lows of April 2020, where it logged a dismal 29.5, yet there was another more modest decline in the last two months of 2020. This recent figure shows a positive reversal in that trend. That same post-cratering dip shows up in the project inquiries graph, but it too reversed in January 2021. 
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The specific data is a collection of mixed bag results with some up from last month and others down. For the regional data, there are two advancers and two decliners. Unfortunately, I live in one of the decliners.
  • Northeast: 41.9 (up from 38.8 in December)
  • South: 47.4 (also up from 46.8 last month)
  • Midwest: 42.2 (down from December's 43.6)
  • West: 42.8 (down slightly from last month's 43.4)
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For the industry sector breakdown, the decliners outnumbered the advancers 3 to 1:
  • Multi-family Residential: 44.4 (down from 46.1 in December)
  • Commercial/Industrial: 44.3 (the biggest decliner, down over 6% from 47.2 last month)
  • Mixed Practice: 47.9 (down fractionally from 48 in December)
  • Institutional: 39.9 (up from December's 38.5)
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While institutional projects did not plumb the same depths as the three other sectors, it is clearly the laggard as the market corrects. The fits-and-starts of the ABI (and its subcategories) also loosely follows the Chicago Board of Options Exchange volatility index for stocks (VIX) which may suggest that billings are trending with greater economic sentiment (a theory I am wholly unable to prove/disprove but does make me wonder). Where as stock traders like volatility and the corresponding price changes, I am guessing most of us in the AEC world would prefer some stability. Hopefully the wild fluctuations are subsiding. Tune in next month for the one-year anniversary of the ABI's 38% drop to see how we have recovered since then.
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Architecture Billings End 2020 with a Decline

1/27/2021

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If I could impose a New Year’s resolution on the design and construction industry, it would be for more work in 2021. Imagine my disappointment upon opening the American Institute of Architects (AIA) press release showing a decline in Architecture Billings Index (ABI). Then it dawned on me…this decline occurred in December. For the time being, the resolution is intact. Whether we should hold our collective breaths is debatable, but I hope we have purged the declines and are leaving them in 2020. The ABI for December was 42.6, a sizable decline from November’s 46.3. The AIA publishes the ABI as am approximately nine to 12-month leading indicator for commercial building construction activity. A value greater than 50 means that architecture billings are increasing; any value less than 50 means billings are decreasing. ​
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Two very minor bright spots and two big losses in the regional indices:
  • Northeast: 38.8 (up from 38.7 in November…any increase is good news)
  • South: 46.8 (up from 46.7 last month. See previous bullet point)
  • Midwest: 43.6 (down steeply from December’s 50.1. I blame the Packers losing in the playoffs. That’s how statistics works, right?)
  • West: 43.4 (also down sharply from 48.3 in December. Blame it on the Rams?)
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There’s one bad actor among the building types and it’s a bit unexpected:
  • Multi-family Residential: 46.1 (down sharply from 52.2 in November, the second largest sector decline behind the Midwest. Not sure we can blame the Pack for this one)
  • Commercial/Industrial: 47.2 (down slightly from 47.5 last month)
  • Mixed Practice: 48 (down from 49.5 in November)
  • Institutional: 38.5 (down from November's 41.9)
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​The multi-family decline is particularly noteworthy. That sector has been the strongest for several years and responded rather well after cratering to an ABI of 30.3 in April as the COVID-19 pandemic was gripping the world. As is true for all data, one point does not signify a trend so no need to panic yet, but I’m very curious about next month’s number.
 
One last point: I bring up project inquiries every so often in these posts and December’s figure of 52.4 is curious. Not only is it above 50, but it increased (albeit slightly) from 52 in November. Before everyone gets too excited, the inquiries are just that: people inquiring about projects. Not much more than kicking the tires on an idea for a project. Additionally, the average inquiry index going back to January 2012 is 58.3, so 52.4 for December is comparatively shabby. All that said, the number of inquires is growing (signified by an index of greater than 50), so the interest in projects is there. I may be trying to generate optimism where it doesn’t exist, but I do see that as the silver lining in an otherwise dismal month. And technically, the ABI New Year’s resolution is still intact…fingers crossed for January.
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Architecture billings decline at the close of the year. Because 2020.

12/22/2020

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The good news is that there's only nine days left in 2020. That's it, that's all I have. But, if you are curious about architectural billings, proceed with caution. The American Institute of Architects (AIA) publishes the Architecture Billings Index (ABI), which serves as a leading indicator of commercial building construction by approximately nine to 12 months. A value greater than 50 means that architecture billings are increasing; any value less than 50 means billings are decreasing. Spoiler alert: there is more declining than increasing. If it is not clear I am completely over 2020.

The overall ABI for November was 46.3, a decline from 47.5 in October. This is the first decline since April. 
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All is not lost as there are some minor bright spots in the regional data if you squint:
  • Northeast: 38.7 (down from 44.9 in October)
  • South: 46.7 (up from 45.8 last month. Yes, I double-checked my notes...)
  • Midwest: 50.1 (also up from last month's 49.4. Hold onto your hats!)
  • West: 48.3 (down from October's 50.4)
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And then we get to the industry sector breakdown...keep on squinting:
  • Multi-family Residential: 52.2 (down from 55.1 in October but at least on the increasing side of 50)
  • Commercial/Industrial: 47.5 (down slightly from 48 last month)
  • Mixed Practice: 49.5 (down from 52.7 in October)
  • Institutional: 41.9 (down from October's 42.2)
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So there are a few bright spots as we glide through the holiday season, but overall we ended the calendar year weakly. Wake me up when it's 2021.
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Architecture Billings Inch Upward But Still Declining

11/19/2020

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Let's get the bad news out of the way: the American Institute of Architect's Architectural Billings Index (ABI) clocked in at 47.5 for October. That is an increase over the previous month's reading of 47, yet a value less than 50 signifies that billings are decreasing (conversely, and this will be important if you continue reading, values greater than 50 mean billings are increasing). The  ABI is a leading indicator of commercial building construction by approximately nine to 12 months, so it is an important leading economic indicator for the commercial building construction industry. Project inquiries increase their streak of being above 50 to three months with October registering a measuring in at 59.1. Inquiries represent interest in projects but not the actual start of design.
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Now let's pivot towards some good(-ish) news: In terms of ABI measures with respect to geographic regions, all regions increased from the previous month and the West pierced the 50 level, being the first region to do so since February:
  • West: 50.4 (up from 45.6 in September)
  • Northeast: 44.9 (up from 41.5 in September and way up from August's 33.9)
  • South: 45.8 (up from the previous month's 43.7)
  • Midwest: 49.4 (knocking on 50's door, up from 45.6 in September)
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Now that I have your attention with some moderately good news, here's some even more moderately good news: all four industry sectors saw increases and TWO broke 50:
  • Multi-family Residential: 55.1 (up from 54 in October, continuing its role of darling of the industry)
  • Commercial/Industrial: 48 (up from 43.3 last month)
  • Mixed Practice: 52.7 (up strongly from 47.3 in October)
  • Institutional: 42.2 (up from last month's 40.5)
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Given COVID, these gains are heartening and the industry is certainly moving in the right direction. That said, as  I type this, we're staring at a giant third wave of COVID infections, the never ending post-election hangover and Congress heading for vacation without seriously considering a relief package. Hopefully this compendium of issues does not derail the planning and design of commercial buildings.
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Contractor Backlogs Up; Construction Spending Expected to Increase in 2021

11/11/2020

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​While COVID-19 is still dominating the headlines around the world, the construction industry still shows pent-up demand in the United States. This morning, the Associated Builders and Contractors (ABC) reported that its Construction Backlog Indicator for October increased 0.2 months from the previous month. While October 2020’s overall backlog of 7.7 months is 1.2 months lower than the October 2019 measure, it remains remarkably stable given the economic uncertainty surrounding the nation. The graphs below display quarterly data. October is the first month for the last quarter of the year, so Q4 is incomplete.
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​Let’s dig into the detailed backlogs, starting with the industry sector breakdown for October:
  • Commercial & Institutional: 7.5 months (up from 7.4 months in September)
  • Heavy Industry: 7.6 months (down from 8.4 last month)
  • Infrastructure: 9.1 months (up sharply from 7.4 in September)
​The overall quarterly numbers are represented below at the close of the first month of Q4:
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​Turning to geographic area, there seems to be a bit of give-and-take with two regions up and one down sharply and one holding fairly steady:
  • Middle States: 6.3 months (down from 6.7 months in September. Steady but slowly declining since July)
  • Northeast: 8.4 months (up nicely from 7.4 months in September)
  • South: 8.4 months (sizeable decrease from 9.5 last month)
  • West: 8.3 months (a steep increase from September's 6.3 month backlog)
​The quarterly trends through the first month of Q4 are shown in the figure below:
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​Last are backlog data by contractor size:
  • <$30 million: 7.4 months (up from 6.9 months in September)
  • $30-$50 million: 7.6 months (a substantial decrease from 10.3 last month)
  • $50-$100 million: 7.8 months (up modestly from September’s 7.2)
  • >$100 million: 10 months (basically flat compared to September’s 10.1)
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​Also in the news today is Dodge Data & Analytics reporting that its 2021 Construction Outlook is pointing to $771 billion in construction starts, a 4% increase from last year. Dodge is expecting a drop in multi-family construction of 1%. This is more likely a sign of that superheated segment coming to the end of its cycle than the negative affects of COVID-19. The other sectors expected to see declines are predictable: retail and hotels. Institutional and public sector construction are predicted to be basically flat or see modest gains, which is also expected given that government aid is uncertain, a trend likely to continue with COVID-19 and the possibility of future gridlock between the Executive Branch and Congress. Manufacturing is also expected to be flat. Private construction is expected to increase with the usual suspects leading the way. Warehouses and data centers are expected to increase 5% as the FAANG companies (Facebook, Amazon, Apple, Netflix and Google) and their smaller peers continue to dominate while utilities are expected to increase a whopping 35% due to expected starts liquid natural gas exporting facilities and wind farms.
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WELL Expansion Update for the First Week of November 2020

11/9/2020

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The WELL Expansion is going vertical. The first structural steel column was set last week while the footings are being placed on the Student Health Center side of the building. The team is working furiously to get out of the ground before the weather turns wet.
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October Construction Economic Update - Still Manic

10/21/2020

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The whipsawing in the construction industry continues. Last month the good news/bad news was slow architectural billings but increased contractor backlogs. This month is just the opposite. So very 2020. Per usual, let's start with the American Institute of Architect's Architectural Billings Index (ABI). Per the usual refresher, the  ABI is a leading indicator of commercial building construction by approximately nine to 12 months. A value greater than 50 means that architecture billings are increasing; any value less than 50 means billings are decreasing. In September the ABI increased  sharply from 40 to 47 (yay!) but is still less than 50 so billings are still decreasing (boo!). The trend is definitely positive and the rebound off of April's bottom does not appear to a false narrative.
​Project inquiries are on a two month streak above 50 with September clocking in at 57.2. Inquiries represent interest in projects but not the actual start, but the sharp increases since April are a positive sign.
​Project inquiries are on a two month streak above 50 with September clocking in at 57.2. Inquiries represent interest in projects but not the actual start, but the sharp increases since April are a positive sign.
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​Project inquiries are on a two month streak above 50 with September clocking in at 57.2. Inquiries represent interest in projects but not the actual start, but the sharp increases since April are a positive sign.
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While none pierce the 50 level, the regional data shows nice increases from last month. It is a little odd to see the South in third place given its torrid growth over the past few years. The breakdown for each region is as follows:
  • West: 45.6 (up from 41.3 in August)
  • Northeast: 41.5 (up sharply from 33.9 last month)
  • South: 43.7 (up from 41.6 in August)
  • Midwest: 45.6 (up from 41.7 in August
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By building type, multi-family breached the 50 level and continues to lead all other sectors. The September stats for all are:
  • Multi-family Residential: 54 (up from 49.4 in August)
  • Commercial/Industrial: 43.3 (up strongly from 35.5 last month)
  • Mixed Practice: 47.3 (also up strongly from 41.9 in August)
  • Institutional: 40.5 (up marginally from last month's 40.2)
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Now let's look at contractor backlogs as reported by the Associated Builders and Contractors. After an increase in August, September saw decreases. The graphs below represent quarterly data through Q3 2020 so the trends continue to look negative. Contractors now have an overall backlog of 7.5 months in September, down from 8 months in August.
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​The details continue to be choppy. Let's start with the details by industry sector for September:
  • Commercial & Institutional: 7.4 months (down from 7.8 months in August)
  • Heavy Industry: 8.4 months (up from 7.9 last month)
  • Infrastructure: 7.4 months (down sharply from 9.6 in August)
​The overall quarterly numbers are represented below at the close of Q3:
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Interestingly, while I previously mentioned it is odd to see ABI for the South in third place, the backlog for the South was the only gainer this month. The details are as such:
  • Middle States: 6.7 months (down from 7 months in August)
  • Northeast: 7.4 months (down from 7.7 months in August)
  • South: 9.5 months (up from 8.7 last month)
  • West: 6.3 months (a steep decline from August's 8.9 month backlog)
​The quarterly trends are shown in the figure below:
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The closing data are backlog by contractor size. The month-to-month data decreased with one exception:
  • <$30 million: 6.9 months (down from 7.4 months in August)
  • $30-$50 million: 10.3 months (a nice jump from 9.2 last month; the second 1+ month increase in a row)
  • $50-$100 million: 7.2 months (a big decrease from August's 9.2)
  • >$100 million: 10.1 months (another big decrease from 11.4 in August)
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2020 is such a different environment that 2019 but the construction industry has stabilized after some sharp economic declines earlier this year. Given the continued drama around COVID and the upcoming presidential election, hopefully the industry holds steady with two small steps forward for every one small step backwards.
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WELL Expansion Update - Week of September 21

9/25/2020

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The building has been opened up and the geopiers were quickly installed last weekend (I apologize for missing that...).
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Construction Industry Update: Architecture Billings Flat While Contractor Backlogs Increase

9/23/2020

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We're three quarters into the month which means it's time to take a look at some economic indicators for the construction industry. Let's start with the leading indicator, the American Institute of Architect's Architectural Billings Index (ABI). As a refresher, the  ABI is a leading indicator of commercial building construction by approximately nine to 12 months. A value greater than 50 means that architecture billings are increasing; any value less than 50 means billings are decreasing. For the third month in a row, the ABI checks in at 40. Still decreasing but at least it's holding steady and up from the low of 29.5 in April.
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Project inquiries climbed over the 50 hurdle, but recall that inquiries basically represent people interested in projects, not those starting them. Still, we'll take good news however it comes.
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The regional data shows modest increases with the exception of the northeast which turned south after four months of increases. The northeast has consistently lagged its peers. The breakdown for each region is as follows:
  • West: 41.3 (a modest gain from July's 40.9)
  • Northeast: 33.9 (down from July's 36.8, again the only decliner)
  • South: 41.6 (a nice increase from last month's 40.7)
  • Midwest: 41.7 (the best performing region, up sharply from last month's 40.1)
 
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By building type, multi-family continues to be the best performing sector, albeit while still having declining billings. Mixed-practice was the only decliner. The August stats for all are:
  • Multi-family Residential: 49.4 (soooo close to 50; up from 47.5 in July)
  • Commercial/Industrial: 35.5 (up modestly from 35.1 last month)
  • Mixed Practice: 41.9 (down rather sharply from 44 in July)
  • Institutional: 40.2 (up from last month's 39.5)
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Switching gears from designers to contractors, a bright spot, albeit small, is that contractor backlogs, as reported by the Associated Builders and Contractors, increased last month. The data below is quarterly so the trends still look negative, but we also have one month remaining in Q3 so we may see these curves invert in the right direction next month. Contractors now have an overall backlog of eight months in August, up from 7.8 months in July. 
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The details are a bit choppy. Let's start with the details by industry sector for August:
  • Commercial & Institutional: 7.8 months (up from 7.6 months in July)
  • Heavy Industry: 7.9 months (down from 8.2 last month)
  • Infrastructure: 9.6 months (up from 9.2 in July)
​The overall quarterly numbers are represented below. It will be interesting to see what these curves look like once Q3 closes next month.
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For geographic region, the data is also choppy with bright spots even though the quarterly curves below trend downward. The details are as such:
  • Middle States: 7 months (down from 7.2 months in July)
  • Northeast: 7.7 months (down sharply from 8.4 months in July)
  • South: 8.7 months (up slightly from 8.3 last month)
  • West: 8.9 months (a monster gain from July's 6.5 month backlog)
​The quarterly trends are shown in the figure below:
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Lastly, the backlog by contractor size is below. The month-to-month data includes some relatively large extremes:
  • <$30 million: 7.4 months (up marginally from 7.3 months in July)
  • $30-$50 million: 9.2 months (a big jump from 7.5 last month)
  • $50-$100 million: 9.2 months (a big decrease from July's 10.5)
  • >$100 million: 11.4 months (another relatively large gain from 10.2 in July)
The score is tied for the quarterly curves with two up ($30-$50 million and $50-$100 million) and two down (<$30 million and >$100 million).
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It's not bold to predict that there could be some more turbulence ahead with election posturing, a possible resurgence of COVID-19 as students return to work and the western states on fire, but in these anxious days, the ABI not decreasing and contractor backlogs increasing, even slightly, isn't too shabby.
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