Thursday, May 19, 2011

Architecture Billing Index (ABI)

As I've written before (See October 2010 posting), I enjoy following the markets and economic data.  Over the years we've all heard that when the architects are busy, that bodes well for contractors down the road.  With that, it makes sense for us to keep an eye on the Architecture Billing Index (ABI).  Basically, if that index is above 50.0 it indicates an increase in architect's billings.  Conversely anything below 50.0 indicates a decrease.  

The American Institute of Architects (AIA) has stated that there is an approximate 9 to 12 month lag between architects billings and non-residential construction spending.  The index was created in 1995 and is widely believed to be a strong leading indicator of construction activity.  It is based on data from a monthly "Work on the Boards" survey and is created by the AIA Economics & Market Research Group.

This index has strengthened in recent months (despite a 3 point drop from March, when it was 50.5, to 47.6 in April 2011 on a nation-wide basis).  See this chart for a history of this index back to January 1996.  Note the sharp drop from January 2008 to the bottom at January 2009.  Next you'll see the strong rebound in the next two years through January 2011.  Even though the index increased quite a bit over those two years, all that meant was that things were "less worse" than the were before, but still not good.  Keep in mind, any number under 50 for the ABI means a contraction in architects billings.

Please note the chart linked to above is on a national basis.  I was able to locate regional data which shows the West is the weakest in the nation.  Regional February 2011 ABI data shows the following:

Midwest: 51.15, South: 48.3, West: 47.7, and Northeast 51.2.  We can see weakness; a decline in billings, in the West and the South, with relative strength in the Northeast and Midwest.  The West region has ranged between 47.3 and 49.7 over the last 6 months, never signaling an increase in architects billings in that time frame.


When reviewing the last few years of this ABI metric, although things are not as bad as they were across the nation and here in the West over the last few years, they are still not strong and it will take perhaps a few more years, perhaps 2013/2014, to get back to times of meaningful growth and strength.  Those contractors who have created an efficient, lower overhead operation and do the basic blocking and tackling; selective, smart bidding and strong project management will survive to see the better times down the road.

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