Architecture Billings Slip But the Pain is Localized

 The American Institute of Architects' (AIA) Architectural Billings Index (ABI) measure for September slipped to 51.7, down from 53.3 the month prior. While this is a relatively steep drop, the losses were localized to two key areas that will be discussed below. And while the ABI slipped, it is still above 50 and is actually higher that it was in July. ABI measures above 50 mean billings are increasing, while those below 50 signal a decrease. The ABI is a nine-to-twelve-month leading indicator of commercial building construction activity. The amount of up-and-down activity in ABI is not surprising giving the gyrations in the overall economy. 

When digging into the details, what jumps out to me are the September result for the South and Multi-family residential, the two sectors that have been in their own secular bull market for quite some time.

• Check out the Northeast. It ripped north last month by 9.6%. Keep in mind that over the 10+ years of data I have, the average ABI for the Northeast is 48.5, meaning it has been declining in billings for an extended period of time. The gains in the Northeast are not a recent phenomenon given that the year-on-year gain is 6% while all other regions are down.
• Multi-family had a really bad terrible month. Over the past 10+ years, it has the second highest ABI subsector performance (right behind the South), but it has the greatest month-over-month and year-over-year losses. Raising interest rates are likely the kerosene on this dumpster fire.
• Almost as surprising as the big jump in the Northeast is the rip up in Institutional ABI. The September reading of 53.9 is well north of the 10+ year average of 50.3. I will be watching to see if this is the result of the recently-passed large infrastructure bills.
• Aside from Institutional, the three other sectors were down, yet their losses were mild compared to Multi-family. The steep month drop in Commercial/Industrial, along with it's yearly loss, are a source of concern that are worthy of future scrutiny.

The graphical data is below, yet the big story of today is the steep slide in the South and Multi-family. That said, while ABI is a leading indicator, the more leading of the leading indicators are the Project Inquiry and Design Contract indices, and both are down on a month-over-month and year-over-year basis. Even worse, they are well below their 10+ year averages. The next few month could see even greater paring unless there is a bump from the infrastructure bills.