AIA Architecture Billings Index declines again

The AIA released its monthly Architecture Billings Index this morning and, not surprisingly, the Index showed that nonresidential construction billings continued to decline in May for the fourth straight month-- and at a faster rate than the month before-- showing continued weakness in nonresidential building.

The Index, which tracks new billing for nonresidential construction at U.S. architecture firms, fell 2.1 points in May to 43.4, according to an AIA press release issued this morning. The figure indicates new billings at architecture firms fell faster in May than the previous month. However, the reading is still up from the all-time low of 39.7 in March.

A reading below 50 means new billings fell; any score above 50 indicates an increase in billings.

The ABI shows an approximate 9- to 12-month lag time between architecture billings and construction spending, meaning the lack of billings now will result in a lack of construction spending later.

The index on inquiries for new projects also declined, giving up 7.4 points to 46.5.

The AIA also tracks other sectors, most of which still indicated a downturn in billings. The index for commercial/industrial projects, which account for 60 percent of all billings, lost 0.8 points to 39.7, while the reading for mixed facilities rose 1.4 points to 45.3. Only the reading on institutional construction came in above 50, rising 3.1 points to 53.9, meaning there has been more work on government buildings, schools, and hospitals.

"We've seen a dramatic contraction in design activity in recent months," said AIA Chief Economist Kermit Baker in a release announcing the May results. "The weakness in design activity can be expected to produce a contraction in these construction later this year and into 2009."

Regionally, the Index breaks down as follows in May: Midwest (51.9), South (47.0), Northeast (41.7), and West (36.3), so there is more work in the Midwest while the rest of the country is struggling.

When will this downturn end? No one can say for sure, but the continued decline in architecture billing is an ominous sign as we head into the second half of 2008.

Ed