Billings at U.S. architecture firms were positive every month in 2005 for the first time since 2000, pointing toward 2006 being the best year for nonresidential construction in six years, an architects’ group reported today.
The Architecture Billings Index, a leading economic indicator of nonresidential construction activity, had a rating of 50.4 in December 2005 (any score above 50 indicates a positive score), compared to 58.4 for November 2005 and 47.8 for December 2004, the American Institute of Architects said.
Because there is a six-month lag time between architecture billings and nonresidential construction activity the overall economy is expected to benefit from the increased activity in this sector in 2006 and 2007, as well as help offset a slowing residential market, the institute said.
With construction accounting for 9 percent of the gross domestic product, increased nonresidential activity could ease the effects of a projected slowdown in the residential market, according to the institute.
“Considering the sluggish consumer spending coupled with the softening residential sector, nonresidential construction should be viewed as a key driver for the overall economy in 2006,” said AIA Chief Economist Kermit Baker. “The nonresidential upturn should continue into 2007 and can be attributed to pent up demand for new projects that weren’t able to be undertaken in recent years.”
All major nonresidential sectors will benefit from improved business conditions, the institute predicted.
According to the AIA, the significant upturn in demand for office space and hotel facilities will drive the commercial market, with educational and healthcare projects seeing substantial growth this year, fueling the institutional sector.
An uptick in manufacturing activity will drive the need for more industrial facilities; post-hurricane rebuilding is projected to accelerate in mid-2006 and continue for several years, and the December inquiry index for new projects was 62.7, showing continued growth in new design projects.
Robert W. Baird & Co. senior industrial analyst, Michael A. Schneider, said, “We believe the AIA’s forecast for accelerating growth in nonresidential construction activity in 2006 bodes well for construction-related companies.”
The institute noted that possible challenges to continued growth include rising short-term interest rates that may lead to expansion slowdown, decreased availability and higher costs for building materials due to strong international construction activity and supply disruptions for key construction materials and increased transportation costs caused by higher oil prices.
The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics & Market Research Group. Based on a comparison of data compiled since the survey’s inception in 1995 with figures from the Department of Commerce on Construction Put in Place, the findings amount to a leading economic indicator that provides an approximately six-month glimpse into the future of nonresidential construction activity.
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