Summer Surge in Design-Service Demand Comes Despite Fears that the Lending Industry May Threaten Construction Activity

Up slightly from the 59.3 mark in June, in July, the Architecture Billings Index (ABI) reached the second-highest mark since the survey's inception in 1995. As a leading economic indicator of construction activity, the ABI shows an approximate 9- to 12-month lag time between architecture billings and construction spending. The Washington, D.C.-based American Institute of Architects (AIA) reported that the July ABI rating was 60 (any score above 50 indicates an increase in billings), and inquiries for new projects was 66.2.

"The good news for the construction industry, based around high levels of demand for architectural services, is tempered somewhat by nervousness in the lending market based around the collapse of the subprime mortgage sector," says AIA Chief Economist Kermit Baker. "While the credit markets for nonresidential projects will most likely return to normal, there is a sense that some construction projects may be delayed until financing anxiety is settled. We will be monitoring this situation closely over the next couple of months."

Key July ABI highlights:

Regional averages: Northeast (68.5), West (60.7), Midwest (55.9), South (57.2).
Sector index breakdown: commercial/industrial (65.2), institutional (61.0), mixed practice (58.0), residential (55.5).
Billings inquiries index: 66.2.

Franco Turrinelli, senior analyst at William Blair & Co., adds, "Investors have been nervous about the economic outlook and, in particular. about construction-related activities. The potential for weakening construction project demand as a result of the subprime residential mortgage fallout has been a significant concern to investors. July's ABI data suggests, on the other hand, that demand remains strong and that visibility into continued construction center strength should be encouraging for investing in these segments."

The Architecture Billings Index is derived from a monthly "Work-on-the-Boards" survey and is 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 9- to 12-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.

This information was provided by the American Institute of Architects, an association of members that works with each other and their communities to create more valuable, healthy, secure, and sustainable buildings and cityscapes. For more information, visit (www.aia.org).