I'm about a week late with this, but the AIA Architectural Billing Index (ABI) is still moderately strong even though it's down from last month's blowout results. If this is your first time at this blog, here's some background: the ABI records architectural billings on commercial building projects. Any 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. Without further ado, here are the results:
Regional (three month moving) Averages for July 2014:
Three out of four declined. Ouch, but not unexpected after last month's huge increases.
Sector Averages for July 2014:
Project inquiries were down to 62.6 (from an astonishing 66.0 in July). The new measure, Design Contracts Index (which, according to AIA highlights trends in new design contracts at architectural firms) clocked in at 56.9 in August (up strongly from 54.9 in July). According to Kermit Baker, AIA's chief economist, "One of the key triggers for accelerating growth at architectural firms is that long-stalled construction projects are starting to come back to life in many areas across the country." If those moth-balled projects require additional design, that could explain the increase in new design contracts among declines in many of the other data points. The declines should not induce panic. The numbers are still overall pretty good and we're above 50 across the board, so things are improving.
The construction industry added 20,000 jobs in August, which is good news in spite of the fact that the 142,000 total jobs created during the month was considered disappointing. According the Ken Simonsen, Chief Economist for the Associated General Contractors of America, year-over-year construction employment increased in 223 U.S. metro areas, decreased in 72 metro areas, and was static in 44. In some areas, companies are finding it difficult to find skilled labor. Perhaps the shortage of labor will increase wages, which were flat (aggregated for the entire U.S.) from July to August.
Check out this article: "U.S. is Entering the Next Couple of Years with One Distinct Advantage". It's a bit wonky if you don't have an interest or background in economics, but here's the Cliffs Notes version:
There is pent-up demand for capital projects, whether new offices, factories, etc. on the private side or infrastructure on the public side. Corporations have been hoarding cash and issuing bonds for even more cash because of the low interest rate environment. At some point they will have to deploy that cash. And given the need for capital facilities and the specter of rising construction costs, now is a pretty good time to break ground on new projects. Given the increasing ABI reported a few weeks ago, we could be on the cusp of a significant increase in construction activity.