Is America Really Experiencing a Building Comeback?

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Current market conditions for architecture and the near-term outlook for the construction industry in the US is a two-sided story, with forward-looking indicators showing steady improvement but serious concerns arising out of an impending ‘fiscal cliff’.

First, the good news: amid a backdrop of falling interest rates, stable – or even slightly improving – economic conditions and an easing of global economic uncertainty, forward-looking indicators for building and construction activity have been turning increasingly positive over recent months.

At 51.6 in September (seasonally adjusted), the Architectural Billings Index is now firmly in positive territory (any reading above 50.0 indicates an increase in billings during the month in question), and has now been on the rise for five consecutive months.

Better yet, with the Inquiries Index firmly in positive territory, the pace at which new architectural work is coming in continues to pick up, meaning that the volume of new work coming down the building and construction pipeline is increasing.

To be sure, the good news is not evenly spread across sectors and regions. Buoyed by lower interest rates, growing demand for rental accommodation and the progressive subsiding of the mortgage crisis, the residential building sector (57.3) is improving quickly whereas activity in commercial and industrial building remains flat.

Furthermore, while the west (53.4) is finally gathering momentum after five years of persistent decline, the Midwest remains down in the dumps.

All this is happening amid a generally stable economy and economic outlook, with the latest figures showing a drop in unemployment in September and the IMF expecting a modest uptick in growth this year and next.

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The ABI is not the only encouraging indicator. Associated Builders and Contractors’ latest Construction Backlog Indicator shows the backlog of work among building contractors standing at eight months, higher than at any other time over the past three years.

The bad news, however, lies with the country’s messy politics and the increasing likelihood that the country will go over the much feared ‘fiscal cliff’ caused by aggressive fiscal spending cuts and tax increases kicking in immediately on January 1 should policy makers fail to reach agreement on a deficit reduction plan.

So worried the industry is that in a recent letter to congress leaders, the American Institute of Architects warned the budget sequestering measures as specified would reduce federal investments in design and construction by more than $2 billion and precipitate the loss of up to 600,000 jobs across the industry.

Even if some form of consensus is reached, the industry is concerned that delaying non-essential repairs, maintenance and upgrades to building and infrastructure will be seen as an easy target for immediate savings. In any event, the industry has acknowledged that even a sensible agreement would almost certainly necessitate cuts to design and construction budgets.

Furthermore, even outside the direct impact of any fiscal cliff measures, the broader effect of such measures on the economy will have some flow-through impact upon residential and commercial building.

The good news is that for now, the industry’s near-term outlook outside of the fiscal cliff is improving.

The bad news is that much of this rosy picture depends on politicians acting sensibly.

By Andrew Heaton
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