Latest Leading Indicator, Along with New Construction Industry Sentiment Survey, Supports Favorable Conditions for Nonresidential Builders
The Architecture Billings Index (ABI), a leading indicator for U.S. commercial real estate
construction, ended 2015 on a positive note despite some monthly volatility, with eight of the past 12 months pointing toward increased demand for architects' services.
The monthly index compiled by the American Institute of Architects (AIA), which reflects the nine- to 12-month lead time between billings by architects and construction spending, moved back into demand growth in December with an index of 50.9, up from 49.3 the previous month. Any index score above 50 indicates an increase in billings.
The ABI report, along with positive sentiment reflected in a new survey of construction industry executives by Wells Fargo Equipment Finance, indicate continued healthy conditions for construction in the early months of 2016.
While architecture firms experienced a mix of business conditions as the profession has for the last several years, "overall, ABI scores for 2015 averaged just below the strong showing in 2014, which points to another healthy year for construction this year," according to AIA Chief Economist Kermit Baker.
On a three-month moving average, the West region posted the strongest demand in December at 53.7, as it did for much of last year, followed closely by the South at 53.3. The Northeast and Midwest lagged a bit at 46.7 and 46.1, respectively. The ABI's new project inquiries index was 60.2 in December, up from a reading of 58.6 the previous month.
Reflecting both the volatility in market conditions and underlying strength of nonresidential construction, a new survey of contractors and equipment distributors indicates that the industry is bullish overall about construction activity in local markets, though slightly less optimistic than a year ago.
The Wells Fargo Construction Industry Forecast’s "optimism quotient" declined to 108 this year after reaching a record high of 130 in 2015. Moreover, the survey released Tuesday by Wells Fargo & Co. subsidiary Wells Fargo Equipment Finance reported that 62% of respondents believe the construction industry will expand over the next two years.
"Expectations for industry growth have flattened out due to market conditions, and in contrast to previous years,
there is a very small gap between the confidence levels of equipment distributors and contractors," according to John Crum, national sales manager of the Wells Fargo Equipment Finance construction group.