Architecture Indexes Support the Position That the Turning Point in Construction May Have Arrived
Washington, D.C. – "Continuing the positive momentum of a nearly three point bump in October, the Architecture Billings Index (ABI) reached its first positive mark since August (see red line in chart above). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI score was 52.0, following a score of 49.4 in October. This score reflects an overall increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 65.0, up dramatically from a reading of 57.3 the previous month (blue line in chart)."
“This is a heartening development for the design and construction industry that only a few years ago accounted for nearly ten percent of overall GDP but has fallen to slightly less than six percent,” said AIA Chief Economist, Kermit Baker. “Hopefully, this uptick in billings is a sign that a recovery phase is in the works. However, given the volatility that we’ve seen nationally and internationally recently, we’ll need to see several more months of positive readings before we’ll have much confidence that the U.S. construction recession is ending."
MP: The November Billings Index was the highest since last December, and the New Projects Inquiry Index was the highest since January 2007, almost a year before the recession started. The strongest region for the November billings index was the South (54.4), and the strongest sector was multi-family residential (55.8).
This strong report today for architecture billings in November follows the strong report earlier today for new residential construction from the Census Bureau. As Brian Wesbury and Robert Stein reported today:
"Housing starts increased 9.3% in November to 685,000 units at an annual rate, blowing away the consensus expected pace of 635,000. Starts are up 24.3% versus a year ago. The large gain in starts in November was mostly due to multi-family units, which are up 145.4% from a year ago (MP: Consistent with the ABI report above for multi-family billings).
New building permits increased 5.7% in November to a 681,000 annual rate, coming in well above the consensus expected pace of 635,000. Compared to a year ago, permits for multi-unit homes are up 70.8% while permits for single-family units are up 3.6%.
Implications: Great news! The turning point in home building has clearly arrived."
MP: If we have reached a turning point in construction, ABI's leading economic indicators of construction activity suggest the recovery is real and will continue - the billing index is at a high for the year and the inquiries index is close to a five-year high, which lends support to the position that the construction recovery will continue in 2012.
12 Comments:
MP: If we have reached a turning point in construction, ABI's leading economic indicators of construction activity suggest the recovery is real and will continue - the billing index is at a high for the year and the inquiries index is close to a five-year high, which lends support to the position that the construction recovery will continue in 2012.
If you believe this then you better load up on copper, zinc, and iron ore companies, add to your oil and coal positions and sell your bonds. But I doubt that this is any more real than the statistics that were released by the National Association of Realtors not all that long ago.
We certainly do not need much more commercial office space and given the huge overhang of housing inventory the only way to justify building multi-family residential construction is to make a bet on the collapse of single family housing units.
Build, baby, build.
Commodities have been slipping for months. New supplies probably coming on.
The fossil fuel story is dead. Too much supply, conservation, alternatives. Man innovates, invents, adapts.
The Fed should go to nominal GDP targeting, and print money until it is coming out of Bernanke's rear end.
Do billings always transfer to actual payments though ??
Without serious job growth, housing will not come back with any strength. Yesterday's positive housing numbers were due to multifamily (rental) housing being up 14%, with single family only up 1.5%, What's even more pathetic is the 1.5% growth is above last year's second lowest new construction number on record.
Ironically, until the never-ending unemployment benefit extensions are eliminated, there will be no serious job growth. One more way the Democrats are knee capping the recovery.
The fossil fuel story is dead. Too much supply, conservation, alternatives.
What a stupid claim. Even the IEA admitted that depletion from operating past-peak fields is running more than 6% per year and an average depletion of more than 5% for all fields. That means that we must spend hundreds of billions each year just to stay even. If prices fall the companies will cut their investments until the fall in supply meets the demand curve again.
The depletion for shale wells runs between 75% and 90% per year so it is clear that shale is not a solution. To make up a 5 mbpd decline each year you would have to drill more than 10,000 new shale liquids wells each year. But at that rate of drilling the core areas in the shale formations will be dry in just a few years. Of course, I am assuming that the funding gap will be closed by banks who keep lending recklessly to drill wells that cannot pay for themselves. Somehow I doubt that we will see such financing unless the government wants to make shale the new solar.
what's odd is that another key indicator of the housing market is heading in the other direction.
"From the MBA:
The Refinance Index decreased 1.6 percent from the previous week. The seasonally adjusted Purchase Index decreased 4.9 percent from one week earlier."
so all manner of mortgage aps are making lows.
this seems contrary to the jump in architecture billing.
the one thing that has been going at a good clip is remodels. perhaps that is what the AI is picking up? (as opposed to new construction)
...
"Compared to a year ago, permits for multi-unit homes are up 70.8% while permits for single-family units are up 3.6%."
The economics of detached single- family homes don't pencil out any more. Repairing a side-sewer at $500 a linear foot, and sharing that cost with others, makes more sense these days. Maintaining the shell of a single-family home is much more expensive, than just one wall in multi-family.
The bottom of the housing market has the following characteristics: high vacancies, low construction rates, foreclosures and little to no speculation. Debt must be written off and properties sell at a deep discount.
... and almost everyone thinks it has much further to drop, much like they did at the top.
Prof. Perry has been banging the drum on the housing market bottom since 2009- the broken clock will be right one day but I don't think it is today...
Agreed that Prof. Perry is consistently over optimistic etc., but I did call the top in 2005, have *not* been calling for the bottom since 2007... and do think its at least a 50-50 for a 2012 housing bottom when measured in nominal prices, 20% down, 30 year mortgage.
I represent developers and I can tell you that multi-family is booming, but that's about all that is improving in the construction industry. My large architectural firm clients are still very slow in every other sector. Until we burn off the large excess inventory in commercial building we're not going to see much improvement.
That is a great point to bring up.!!! Earnings in construction are higher than the average for all industries (table 4). In 2008, production or nonsupervisory workers in construction averaged $21.87 an hour, or about $842 a week.
Post a Comment
<< Home