Signaling that conditions in the non-residential construction sector in the United States are not matching the recovery in residential building, the country’s architectural billings index (ABI) slipped further in May following the first negative result in five months in April.
In the month of May, the ABI came registered 45.4 – down from 48.4 in April and well below the 50.0 level which separates increasing levels of architectural billings from decreasing billing levels.
The index, a seasonally adjusted diffusion index based on monthly surveys from architectural firms throughout the country, is considered a leading economic indicator of construction activity nine to 12 months in advance.
May’s negative result does not bode well for likely construction activity in the early to mid-part of 2013.
American Institute of Architects Chief Economist Kermit Baker describes the latest figures as an ‘alarm bell’ for the construction industry, noting that the industry’s forecasters will have to reassess what conditions will look like going forward.
“For the second year in a row, we’re seeing declines in springtime design activity after a healthy first quarter,” Baker says. “Given the ongoing uncertainly in the economic outlook, particularly the weak job growth numbers in recent months, this should be an alarm bell going off for the design and construction industry.”
In terms of sectors, Baker says commercial and industrial (50.7) was the only area recording gains in design activity at the moment, and that even this sector has slowed significantly. The multi-family residential (48.9), institutional (45.6) and mixed practice (41.5) sectors all recorded declining activity.
The new figures follow recent data showing that non-residential construction spending is declining again and that construction industry employment is falling.
Associated Builders and Contractors chief economist Anirban Basu says forward indicators suggest that non-residential US construction activity – already being affected by growing investor caution in the wake of slow job growth and continuing problems in Europe relating to weak economic activity and sovereign debt – will continue to languish in months ahead.
However, not all of the ABI results were discouraging. At 54.0, the new projects inquiry index stood reasonably comfortably in positive territory, despite having edged down from 54.4 in the previous month.
That indicates that the rate at which new architectural work is coming in continues to increase, albeit at a modest pace.