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06.23.2010
Billings Headed Down Bumpy Road
Following strong spring, AIA billings index tumbles again, pointing to long, uneasy recovery
Billings (blue) and inquiries (red) for the past 12 months.
Matt Chaban/Archpaper

Just as the architecture industry was beginning to see sustained economic improvement, another rough month suggests that the recovery will continue to be a long slog with a full turnaround not likely until at least next year. After three months of continuous gains culminating in April with the highest billings since January 2008, the AIA Architecture Billings Index took a precipitous slip in May, reversing much of the recent gains and slipping back into the territory in which billings have languished for the past year.

“I was a bit surprised by it, particularly the magnitude,” AIA Chief Economist Kermit Baker said. “It’s been jumping around for the past six to nine months, but this is a big drop after some pretty steady gains.”

Billings fell to 45.8 from 48.5 in April, the first decline since January, when the index fell from 45.4 in December to 42.5. Baker believes that the index will continue to rise in coming months, but the slip also points to a slow, unsteady recovery. “I think we’re looking at many more months of sluggish activity; it's just that it’ll be sluggish on the upside, not the downside,” Baker said.

Billings by region: Northeast (orange), Midwest (blue), South (red), West (green).

Inquiries for new work also fell, to 55.5 from 59.6 in April, reversing two months of strong growth. (A reading above 50 means billings or inquiries are rising, below means they are falling, and the further they are from 50, the stronger the movement up or down.)

In another bad sign, every region declined in May. The Northeast did manage to stay above 50, falling to 50.6 from 51.0, as much as could be hoped for an area that has been headed in the right direction since December. The Midwest remains almost level at 48.5, down from 49.2 in April and 50.5 the month before, when it was the first region to break through into positive territory. The South continues to struggle, dropping to 45.6 from 46.5. The West, which spent almost all of 2009 in the 30s before rallying in the winter to reach 46.0 in March, has seen its second month of serious declines, falling to 42.9 in May from 44.7 in April.

The one bright spot in May was the commercial/industrial sector, which hit 51.3, its first time across the threshold since December 2007, rising from 48.5 in April and showing strong gains since December 2009, when it was at 42.7. While Baker pointed out that industrial growth has powered much of the architecture industry over the past few months, either directly or indirectly, he also cautioned that the sector was one of the most volatile. “I wouldn’t necessarily count on office buildings, hotels, and factories to get us out of this,” he said.

Billings by sector: Residential (green), commercial/industrial (pink), institutional (gold), mixed-use (purple).

The residential sector also saw gains in May, rising to 46.9 from 45.8 and reversing a four-month decline from 50.1 in January, though the housing market also remains shaky due partly to the expiration of the homebuyer tax credit and the potential for rising interest rates. The mixed-use sector had its first decline to 46.8 in May since August, when it was at 38.8, having steadily risen to 48.4 in April before falling, a clear step in the wrong direction for a sector that has been performing better of late. And the institutional sector, typically the strongest during downturns, continued to languish, dropping to 43.4 from 46.8 in April and March, having been at 44.2 in February.

“I don’t know if it’s Greek debt or whatever, but there has been a lot of fluctuation in the stock market that may have caused some people to rethink their projects or caused some lenders to reconsider,” Baker said, though he still remains optimistic.

“I don’t see anything here in the fundamentals that doesn’t lead me to think we’re going to continue to trend up,” Baker said.

Matt Chaban