Architecture Indexes Support the Position That the Turning Point in Construction May Have Arrived

Washington, D.C. (no link available yet) – "Continuing the positive momentum of a nearly three point bump in October, the Architecture Billings Index (ABI) reached its first positive mark since August (see red line in chart above). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI score was 52.0, following a score of 49.4 in October. This score reflects an overall increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 65.0, up dramatically from a reading of 57.3 the previous month (blue line in chart above)."

“This is a heartening development for the design and construction industry that only a few years ago accounted for nearly ten percent of overall GDP but has fallen to slightly less than six percent,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Hopefully, this uptick in billings is a sign that a recovery phase is in the works. However, given the volatility that we've seen nationally and internationally recently, we'll need to see several more months of positive readings before we'll have much confidence that the U.S. construction recession is ending."

MP: The November Billings Index was the highest since last December, and the New Projects Inquiry Index was the highest since January 2007, almost a year before the recession started.  The strongest region for the November billings index was the South (54.4), and the strongest sector was multi-family residential (55.8).

This strong report today for architecture billings in November follows the strong report earlier today for new residential construction from the Census Bureau.  As Brian Wesbury and Robert Stein reported today:

"Housing starts increased 9.3% in November to 685,000 units at an annual rate, blowing away the consensus expected pace of 635,000. Starts are up 24.3% versus a year ago. The large gain in starts in November was mostly due to multi-family units, which are up 145.4% from a year ago (MP: Consistent with the ABI report above for billings).

New building permits increased 5.7% in November to a 681,000 annual rate, coming in well above the consensus expected pace of 635,000. Compared to a year ago, permits for multi-unit homes are up 70.8% while permits for single-family units are up 3.6%.

Implications: Great news! The turning point in home building has clearly arrived."

MP: If we have reached a turning point in construction, ABI's leading economic indicators of construction activity suggest the recovery is real and will continue - the billing index is at a high for the year and the inquiries index is close to a five-year high, which lends support to the position that the construction recovery will continue in 2012.