Architecture Billings Still Positive but Losing Steam

If you think the above title sounds like I am hedging, trust your instincts. Since I tend to be pessimistic, I am going to throw a curve ball and lead with the good news: the Architectural Billings Index (ABI), as compiled by the American Institute of Architects (AIA), registered as 53.2 in June 2022. Measures above 50 mean billings are increasing, while those below 50 connotate a decline in billings. The ABI is a nine-to-twelve-month leading indicator of commercial building construction activity. The negative flip side to the news is that the ABI declined from May, which is the fourth straight month of declines. Furthermore, all of the subset data except one have declined month-over-month and all declined year-over-year. Enough negativity...let's tack back to the positive. While declines are rarely good news, particularly with terms like "recession" being bandied about, a little perspective can be applied in terms of the AEC industry being incredibly busy for almost a year and a half. Given the multiple woes of labor availability, supply chain issues, COVID, interest rate hikes etc., etc., a little slowing will allow designers and builders an opportunity to find some firm footing to complete projects. The details of the most recent data is below, there are a few things I want to point out:

• The Northeast was the only subset of data that slipped below the 50 threshold. So again, buildings are increasing in 10 out of 11 data subsets, but the Northeast is back into the decline column after two months of growth. Also (amazingly?), June's 48.7 is above the 126-month average of 48.4.
• The West and Midwest are above their 126-month averages (50.7 and 51.2 respectively), while the South is below its average (52.8).
• The only subsector month-over-month gainer was in Institutional buildings.
• For the sectors, all are still above their 126-month averages. Again, not all the news is dire, but...
• The two forward-looking measures, Project Inquiries and Design Contracts, are below their 126-month averages (59.1 and 52.4, respectively).

So a sort of mixed bag of news that leans negatively. Given the Federal Reserve meeting this week where the Fed Funds rate is likely to go up 100 basis points and a lot of quarterly earnings being reported, the next few months of economic data watching should be interesting.