Architecture Billings Index shows nonresidential growth

Based on the approximately six- to nine-month lag time between architecture billings and construction spending, business conditions appear to be favorable for the nonresidential construction market in 2006, possibly continuing into 2007.

The January ABI rating was 55.5, up from the seasonally adjusted score of 53.7 in December 2005. Any score above 50 indicates an increase.

“As the residential market shows signs of softening, the nonresidential market is in excellent position to pick up the slack in construction activity,” American Institute of Architects Chief Economist Kermit Baker said in a news release. “Nonresidential construction not only represents billions of dollars in economic activity but also generates a lot of related spending in furnishings and interior décor.”

According to Department of Commerce figures, spending on nonresidential construction in 2005 totaled $487 billion, accounting for 4 percent of gross domestic product. The impact on the overall economy is significant, considering that the AIA Consensus Construction Forecast Panel has anticipated close to 5 percent real growth in nonresidential building construction this year, with growth evenly balanced between the commercial, industrial and institutional sectors.

The billings inquiries index was up slightly to 64.4, compared to 63.9 in December.

“While nonresidential construction economics, as a function of climbing short-term interest rates and improved occupancy, have improved recently, the electrical products manufacturers, distributors, and contractors have only experienced more isolated benefits,” said Brent Rakers, analyst with Morgan Keegan & Co., in the release. “That being said, leading indicators such as the Architecture Billings Index provide a preview for a broader based uptrend in 2006. In line with the monthly ABI results, we expect a consistent improvement in nonresidential construction trends over the course of 2006.”