The Dow was up another 396 points yesterday, following Friday’s rally of 494 points. But that, of course, was preceded by a two-day drop when the index shed nearly 900 points. Architects addled by the market’s moment-by-moment gyrations may take a measure of relief in the fact that the AIA’s Architecture Billings Index (ABI) is released on a monthly, not instantaneous, basis. But it can still feel like a swift punch in the gut.
So it was last week, when the AIA released its billings numbers for October, a month when world financial markets were reported to be on the brink of collapse. Just as those markets dropped to levels not seen in decades, the ABI achieved historically new lows at a historically precipitous rate of decline.
For October, U.S. architects recorded a billings level of 36.2, down from 41.4 in September and 47.6 in August. In March, the second-weakest month in the index’s 13-year history, the reading was 39.2. Since March, the index had posted gains of a point or two, suggesting the downturn might be brief, but the last two months have erased almost any hope of a reprieve, said Kermit Baker, the chief economist of the AIA and the person who developed the index. (Measured on a scale of 1 to 100, a measure of 50 is neutral, with anything over representing a rise in billings and anything under, a drop.)
While October billings were bad, the real shock came from the inquiries architects surveyed by the AIA said they had received. The monthly inquiries reading was 39.9, not only a historic low but a considerable fall from September (51.0) and May (46.5), when inquiries hit their previous historic low. Demonstrating just how severe this downturn might be is the fact that inquiries have dropped below 50 three times this year—in March, they measured 48.0—while they had only fallen past that point once previously, in September 2001. Historic comparisons can be hard to make, however, since the index, which recorded its first measurements in November 1995, is so young.
Still, Baker said there was no question that the industry was in bad shape. “I think there’s a lot of weakness permeating the entire profession,” he told AN. “It’s permeating every region and every business type, so we’re without that buffer.”
Of greatest concern to Baker was the institutional sector, which is typically a bright spot during economic hard times because governments, schools, and other institutions prefer to build when there tends to be less competition for materials and labor. This had remained the case throughout the year, until the sector began to fall in August, when it registered a drop to 48.9 points from 52.1 in July. In September it reached 44.4 and for October it was 42.1, the lowest on record. That is still considerably better than multi-family housing, which reached 34.2 in October, though that sector has also been struggling since last August and fluctuating since late 2006, both a result of the housing bubble that set off the current economic turmoil.
But now even governments, universities, and other private institutions are hard-up for cash. Take the New York City School Construction Authority, which cut its five-year capital budget nearly in half. Daniel Heuberger, a principal at Dattner Architects who has designed a number of schools for the city, said his division remains busy with projects for both public and private schools, but he would also not be surprised to see work abate. “If the downturn is long enough, though the private sector gets hit first, it will eventually come full-circle,” he said.
(Despite this fact, the Northeast was the one region to post a gain this month, though again, such gains are relative considering all four regions have been have been in the doldrums of the past few months.)
With credit markets showing some signs of normalizing, Baker hopes so, too, will the billings index. But at the same time, with the financial markets still suffering and construction starts faltering, there is no way to know what the future holds in store. “We are looking at a shrinking economy even if the credit markets are operating more smoothly,” Baker said. “We will just have to wait and see where the market takes us.”
Until next month, then.