Wednesday, July 21, 2010

Is the Third Wednesday of Each Month Groundhog Day?

Forgive me if you've heard this before, but there was a negligible increase in the American Institute of Architects' Architecture Billings Index last month.

Continuing it's "one step forward, two steps back, two steps forward, one step back" routine of the past three years, the June ABI rating was 46.0, up slightly from a reading of 45.8 in May. And that May numbers was a sharp decline from the 48.4 in April. The score reflects a continued decline in demand for design services (any score above 50 indicates an increase in billings).

As a leading economic indicator of construction activity, the ABI reflects the approximate 9- to 12-month lag time between architecture billings and construction spending. What the June ABI rating means, therefore, is that it's going to be at least spring 2011 before we even begin to see things get better in the AEC industry.

"The steep decline in nonresidential property values has slowed investment in new facilities," said AIA Chief Economist Kermit Baker. "Conditions at architecture firms continue to remain very soft, but we're optimistic that they will improve before the end of the year."

Until the ABI shows AT LEAST three consecutive months above 50, don't believe any projections that things will get better anytime soon. There's just no quantifiable data that anyone can point to with certainty that shows WHEN things will get better.

The new projects inquiry index did increase from 55.5 to 57.7, but as we've talked about before, that's as much a sign of more firms pursuing projects as it is there being more projects out there.

So we live in a world of speculative positivity, where people want the crystal ball to show things are going to get better. That's called wishing upon a star, and you can't plan with any certainty for 2011 that things are going to improve.

Your best course of action is to plan for this sort of topsy-turvy economy to keep middling along for the next year or so. Pursue strategic acquisitions, fill key positions, and try to prepare yourself for the upturn, whenever that may be.

Regionally, the ABI breaks down as follows: Northeast (47.7, down from 50.6), South (46.7, up from 45.9), Midwest (46.3, down from 48.5), and West (43.6, up from 42.9). By market sector, the ABI is as follows: commercial/industrial (50.6, down from 51.3), multi-family residential (46.5, down from 46.9), institutional (45.0, up from 43.4), and mixed practice (44.7, down from 46.8).

Ed
 
Follow @PSMJ_Resources