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Commercial Construction Is Back On the Drafting Board

Architecture Billings Index Reaches 7-Year High In Latest Indicator Confirming Nonresidential Development Uptick
August 21, 2014
Government statistics and the latest reports from the design and construction sectors suggest that the growing number of cranes dotting the country's CBDs and suburbs won't be leveling off any time soon.

According to the latest report by the American Institute of Architects (AIA), the Architecture Billings Index hit its highest level since 2007 in July as robust demand for design services continues to spread across all U.S. regions and construction sectors.

The billings index, viewed as a leading indicator of commercial real estate development activity, reached 55.8 in July, up sharply from 53.5 in June. Design services demand has advanced steadily over the last three months, according to the AIA. The new projects inquiry sub-index was a very strong 66, down slightly from 66.4 in June.

The U.S. has added roughly 2.5 million jobs over the past year and financing conditions have also improved, which should set the stage for a more rapid recovery in a number of key nonresidential segments, including office, manufacturing, and even the recently slumbering educational, medical and other institutional sectors.

"The key to a more widespread boost in design activity continues to be the institutional sector, which is starting to exhibit signs of life after languishing for the better part of the last five-plus years," said AIA Chief Economist Kermit Baker.

The strengthening ABI, along with several other recent construction measures, dovetails with a marked increase in U.S. development in 2014. The boom has spread from apartments to condominiums, office buildings, warehouses and mixed-use developments.

The Associated Builders and Contractors (ABC) Construction Backlog Indicator, a measure of projects under contract but not yet completed, reached an all-time high of 8.5 in the second quarter, improving by 5.4% from the first quarter and up by 3.6% year-over-year.

Another leading indicator, the Dodge Momentum Index, remains 16.5% higher than a year earlier. The Dodge index reflects first reports on nonresidential building projects entering the planning process, which correlate with commercial, institutional and heavy construction spending a full year later.

Recent numbers from the Bureau of Labor Statistics (BLS) show that nonresidential construction employment, including building and specialty trades, and heavy and civil engineering construction, increased by 9,100 in June. Construction-related jobs rose 2.6% year-over-year, with all five residential and nonresidential segments adding workers over the last 12 months.

"The long-awaited brisk nonresidential construction recovery may be upon us," said ABC Chief Economist Anirban Basu. "Industry momentum was snuffed out by a seemingly endless winter, but the pace of industry recovery has been accelerating ever since."
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