AIA Index: Major Downturn in Commercial Construction Ahead

Another economic indicator appears to have hit the skids. The Architecture Billings Index (ABI) plunged almost nine points in February. Assembled by the American Institute of Architects (AIA), ABI measures “work-on-the-boards” and predicts non-residential construction activity nine to 12 months into the future. In February, the ABI rating stood at 41.8, the lowest rating since October 2001 and down from 50.7 in January. A rating above 50 indicates an increase in billings and a possible increase in construction activity. Attributing the decrease in the ABI rating to the housing slump and tightening credit market, an AIA spokesperson told CPN today that a drop-off in housing developments reduces demand in retail stores, restaurants and entertainment establishments and discourage developers. “Anxiety in the lending market has seeped into the commercial sector, too,” continued Frank, “and there is always the possibility that lenders are no longer in the position to finance projects that were in the planning stages.”The ABI joins a host of economic indicators forecasting economic decline. According to the U.S. Census Bureau’s most current surveys, shipments of durable goods, considered a bellwether leading indicator, dropped $12 billion or 5.3 percent in January after climbing 4.4 percent in December. New orders for manufactured goods fell 2.5 percent in January, compared to a 2 percent increase in December. Housing starts fell 0.6 percent in February, compared to a revised January figure showing a 7 percent increase. Retail sales fell 0.6 percent in February after a January increase of 0.4 percent. Despite the decline in the value of the dollar, the most recent figures show that the trade deficit reached $58.2 billion in January, up from $57.9 billion in December. Finally, the Census Bureau’s March 3 tally of construction spending in January reflects the trend indicated by the ABI index. Construction spending fell 1.7 percent to $1,121.5 billion from the revised December estimate of $1,140.4 billion. The January 2008 number was 3.3 percent below the estimate for January of 2007.