Posted by: union03g | April 21, 2010

Architecture Billing Index – The Canary in The Coal Mine

If you want to get the earliest forecast for the commercial real estate (CRE) market, you have to find out what the architects are doing. The Architecture Billing Index is a 9 – 12 month leading indicator of construction spending in CRE. The index increased in March to 46.1 from a rating of 44.8 in February. An index above 50 represents expansion of investment.

This is a good sign for CRE considering everyone believes it’s the next bubble to burst. My thought is: how can CRE really be that bad if architectural business is seeing an increase in activity and a recovery. The ABI might even be above 50 by the end of summer! Can you imagine how hard activity will snap back due to the depleted pipeline???

Architecture Billings Index and Investment

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Responses

  1. The problem with your statement is that you must not understand what the index means. Each month that the index is below 50 indicates that there was less billing than the previous month. Even though the index was higher in Jan 2010 than Jan 2009, there was less billing because evermonth since Jan 08 there has been a decline in billings from the previous month. This chart only shows a smaller declines recently but no increase in billings which means no increase in building construction until 9-12 months after the index crosses 50.

  2. Nice to see someone note the real importance of architecture to our economy. Thank you.
    As an architect who participates in the ABI I would urge caution. The index is a voluntary survey of architects who historically err on the side of optimism in the face of all evidence to the contrary.
    That said the true condition of architects has been canary for the entire American economy for all of the thirty years I have worked in the profession and the condition of architecture at this moment is by far the worst I have seen in forty years of study and practice.
    The American economy stilll runs on construction and real estate first and foremost. Wall street feeds off this economic activity and that is why wall Street is really in such bad shape.
    The Fed thought it could kill real estate and by doing so pump the stock market. It may work for a little while but not indefinitely.
    Eventually the fundamentals will rule and there is no bottom to the economy. It is a hollow house of cards and can not prosper until Design and Consruction return with all of the taxes they raise.


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