Wednesday, December 22, 2010

Firm Billings Rebound in November

The American Institute of Architects’ Architecture Billings Index showed a revenue increase at U.S. architecture firms in November, the second monthly increase in billings since early 2008. Business upturn is becoming more widespread, but firms remain cautious about potential 2011 improvement

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-to-12 month lag time between architecture billings, and actual construction spending.

The index recorded a score of 52.0 for November, a three point gain from the previous month, and its strongest level since December 2007. Any score above 50 signifies growth at U.S. architecture firms, and with ABI scores above the 50 level in two of the past three months, the prospects of a sustainable recovery in design activity are enhanced. Regional revenue trends also are very encouraging. Firms in the Northeast, Midwest, and South all reported billings increases in November. The billings index for firms in the West increased 2.5 points in November, but since the index for this region remains below 50, it still reflected a modest decline from October levels.

Trends in billings by construction sector were more mixed. On the positive side, residential architecture firms report a solid increase in billings, with the index for that sector increasing to 54.3, its highest reading since mid-2007. On the negative side, the billings index for commercial/industrial firms dipped below 50 for the first time since last April. The billings index for institutional firms held steady, and has been slowly trending up for most of the year.

At the national level, economic growth remains slow. Recent employment reports show slight growth continuing in the fourth quarter. Payrolls increased an average of 105,000 nationally through October and November, only slightly better than the 82,000 average monthly increases through the first three quarters of the year. There have been modest gains in consumer spending, and retail sales have increased at about a 6 percent pace through the first ten months of the year. However, these gains may be somewhat better than they appear to be, since inflation is running at only about 1.5 percent compared to year-ago levels, and is less than 1 percent when more volatile food and energy components are taken out.

The December 1 report by the Federal Reserve Board paints a picture of the regional commercial real estate markets. According to this report, the New York, Atlanta, and Kansas City districts noted some weakening in nonresidential activity, while the Boston and Dallas districts indicated some modest improvement. Boston, Richmond, Kansas City, and Dallas expressed optimism about the near-term outlook. Both residential and commercial/industrial firms are more optimistic about business conditions over the coming year. Half of the firms in each group are expecting revenue increases in 2011, while only one quarter are expecting declines. In contrast, almost half of institutional firms are expecting revenue declines over the coming year, with only 38 percent expecting growth. Regionally, firms in the Northeast and Midwest are expecting more favorable conditions in the future, with half of the firms in each of these regions expecting growth. Almost half of firms in the West anticipate revenue declines in 2011.

Regionally the ABI breaks down as follows from October to November: West is up 48.7 from 44.3, Northeast down 51.1 from 54.5, Midwest is down 50.9 from 51.8, and South is up 50.5 from 48.6.

By market sector from September to November Residential is up 54.3 from 49.1, Commercial/Industrial is down 49.8 from 56.7, Institutional is down 49.3 from 50.8, and Mixed is up 45.8 from 43.2.

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