Architecture Billings Are a Mixed Bag, But At Least They Are Performing Better Than the Stock Market

It has been two months since I have posted regarding the American Institute of Architects' (AIA) Architectural Billings Index (ABI). In that two months, the Dow and S&P 500 are down over 9% and the NASDAQ is down over 6%, with the bulk of these drops in the form of market convulsions based on the Fed raising interest rates. Layer this on top of 40-year high inflation and the sundry labor and supply chain issues and you have a cocktail for malaise. However, over that same period of time, the ABI is actually up, albeit by less than 1%. The August ABI registered at 53.3, versus 51 in July and 53.2 in June. But up is up, so keep that in mind before the other shoe drops. Recall that 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.

As for that other shoe...there is a lot of negative numbers, both from month-over-month ABI data and year-over-year. The details are as follows, but first a few notes:

• The month-over-month increase in the overall ABI from 51 in June to 53.2 in August was exclusively the work of the Northeast (+2.9%) and Institutional buildings (+4.8%).  Every other subsector was down.
• Speaking of the Northeast, that region is very Jekyll and Hyde. Its 10+ year average subsector ABI is 48.4, the only subsector below 50. That said, it is home to three of the top 10 metro areas for construction starts (New York, Washington, D.C. and Philadelphia). I am aware there is a pretty big difference between starts for the first half of this year and 10+ years of data, but I still find it interesting that the lagging region houses some of the busiest cities.
• Between the overall ABI, the regional and building type subsectors, Project Inquiries and Design Contracts (11 total data sets), five are now below their 10+ year averages:
  • West: 50.2 in August versus a 128-month average of 50.7
  • Multi-family Residential: 52 in August versus a 128-month average of 52.3
  • Institutional: 52 in August versus a 128-month average of 50.2
  • Project Inquiries: 57.9 in August versus a 128-month average of 59.1
  • Design Contract Index: 52.3 in August versus a 128-month average of 52.4
• The overall August ABI of 53.3 is greater than the 128-month average of 51, so not all is bad.

Per usual, it will be important to watch the ABI and other metrics (e.g. construction material costs and labor rates) as the economy continues to navigate choppy waters. I suspect the measures will decline more next month given the sense of pessimism on Wall Street, but I hope I am wrong. There is a bit of distance between Wall Street and market demand.