Architecture Billings Index Drops Significantly

Feb. 25, 2010

Beginning its third year of negative conditions, the Architecture Billings Index (ABI), which reflects the approximate 9- to 12-month lag time between architecture billings and construction spending, dropped nearly 3 points in January.

The American Institute of Architects (AIA) reported the January ABI rating was 42.5, down sharply from a revised reading of 45.4 in December. The ABI is a leading economic indicator of construction activity, and this rating indicates a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 52.5, down more than 7 points, but still indicating an increase in billings.

“Projects are being delayed or cancelled because lending institutions are placing unusually stringent equity requirements on new developments. This is even happening to financially sound companies with strong credit ratings,” says Kermit Baker, chief economist for AIA. “This serious situation is being compounded by a skittish bond market, decreased tax revenues for publicly financed projects, and declining property values – all which serve as deterrents for construction activity. Until these factors are resolved, the design and construction industry – which accounts for roughly 10 percent of GDP and is facing unemployment figures in excess of 20 percent – will continue to face deteriorating market conditions.”

Additionally, the January ABI showed regional averages for the Midwest to be 48.0; for the Northeast, 45.7; for the South, 41.32; and for the West, 40.5. The January ABI rating for the multi-family residential sector was 50.1; commercial/industrial, 44.9; institutional, 43.1; and mixed-practice, 40.3.

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