by Calculated Risk on 10/23/2024 02:48:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture firm billings worsened in September

The AIA/Deltek Architecture Billings Index (ABI) score was 45.7 for the month, as the majority of firms continued to report declining billings.

Despite recently announced rate cuts by the Federal Reserve, clients are still cautious about future projects. Inquiries into potential new projects continued to increase, but the pace has slowed since the beginning of the year. And the value of newly signed design contracts at firms decreased for the sixth consecutive month in September, although the pace of that decline has moderated somewhat over the last few months. However, firms continue to report average backlogs of 6.4 months, which remains above pre-pandemic historical averages and is a good indicator of existing work in the pipeline, even if new work coming in has slowed.

Conditions remained soft across the country as well in September. Billings were softest at firms located in the West for the third consecutive month, followed by firms located in the Midwest. Business conditions may be close to turning positive at firms located in the South, though, where they only declined slightly this month. By firm specialization, firms with a multifamily residential specialization saw billings soften further in September, while billings also remained fairly weak at firms with a commercial/industrial specialization. Although billings continued to decline at firms with an institutional specialization as well, the pace of that decline remained more modest than at firms of other specializations, which has been the case since the beginning of the summer.
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The ABI score is a leading economic indicator of construction activity, providing an approximately nine-to-twelve-month glimpse into the future of nonresidential construction spending activity. The score is derived from a monthly survey of architecture firms that measures the change in the number of services provided to clients.
emphasis added

• Northeast (46.4); Midwest (45.0); South (49.5); West (42.6)

• Sector index breakdown: commercial/industrial (44.2); institutional (48.5); multifamily residential (41.7)

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 45.7 in September, unchanged from 45.7 in August.  Anything below 50 indicates a decrease in demand for architects' services.

This index has indicated contraction for 23 of the last 24 months.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

This index usually leads CRE investment by 9 to 12 months, so this index suggests a slowdown in CRE investment into 2025.

Note that multi-family billing turned down in August 2022 and has been negative for twenty-six consecutive months (with revisions).   This suggests we will see a further weakness in multi-family starts.