Based on the approximately six to nine month lag time between architecture billings and construction spending, business conditions appear favorable for the nonresidential construction market in 2006 and possibly into 2007.
“As the residential market shows signs of softening, the nonresidential market is in excellent position to pick up the slack in construction activity,” says AIA Chief Economist Kermit Baker. “Nonresidential construction not only represents billions of dollars in economic activity, but also generates a lot of related spending in furnishings and interior decor.”
According to Department of Commerce figures, spending on nonresidential construction in 2005 totaled $487 billion accounting for 4 percent of GDP. The impact on the overall economy is significant considering that the AIA Consensus Construction Forecast Panel has anticipated close to five percent real growth in nonresidential building construction this year, with growth evenly balanced between the commercial/industrial and institutional sectors.
Key January highlights are:
Morgan Keegan & Co. analyst, Brent Rakers, says, “While non-residential construction economics, as a function of climbing short-term interest rates and improved occupancy, have improved recently, the electrical products manufacturers, distributors, and contractors have only experienced more isolated benefits. That being said, leading indicators such as the ABI provide a preview for a broader based uptrend in 2006. In line with the monthly ABI results we expect a consistent improvement in nonresidential construction trends over the course of 2006.”
The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics & Market Research Group. Based on a comparison of data compiled since the survey’s inception in 1995 with figures from the Department of Commerce on Construction Put in Place, the findings amount to a leading economic indicator that provides an approximately six month glimpse into the future of nonresidential construction activity. The diffusion indexes contained in the full report are derived from a monthly survey sent to a panel of AIA member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month.
