Up Is Still Down

Up Is Still Down

After reaching yet another record low in January—for the third time in the past year—the AIA Architecture Billings Index has risen slightly for February, though it remains far from positive territory. The good news, however, is that inquiries have risen considerably over the last two months, approaching the break-even point.

“My take is, if you twist the graph sideways and squint a little, you can see some improvement,” Kermit Baker, the AIA chief economist, said in an interview. “It isn’t much, but at least it’s heading in the right direction.”

Billings bounced up two points to 35.3 from 33.3, though similar up and down fluctuations have occurred since the wider economy went into freefall in October. Inquiries reached a promising level of 49.5, though, up from 43.5 in January and a record-low 37.7 in December.

“That’s a great sign,” Baker said of the inquiries, though he also cautioned that should inquiries reach the 50 mark but not move up much further, that does not mean a recovery, but instead a bottoming out of the market. The same goes for billings: not until the numbers reach the low 50s on a consistent basis can a true recovery be declared, a point that is probably still months, if not years, away. (Any reading below 50 means billings or inquiries are falling while those above mean they are rising.)

More importantly, Baker said he was surprised by the results of the monthly survey question, which asked whether it was the credit markets or the wider economy that was causing firms’ woes. He said that 20 percent of respondents blamed the frozen credit markets for causing their projects to stall compared to 33 percent who blamed general economic malaise.

While this may sound bad, Baker said he expected the numbers to tip far more toward the economy than the credit markets, and that nearly half of respondents either blamed both or could not decide between the two, which still means that should the markets normalize, it could mean a rapid, even unexpected, resumption of work.

Baker was reluctant to provide an explanation for the rise in inquiries, though he did acknowledge it could be more residual good feelings about the stimulus bill. He gave his own assessment of the package, which countered the increasingly common notion there would be no money for architects, instead saying he found between $40 billion and $45 billion in the bill, mostly for building and refurbishing housing. But, he added, that money would not work its way into the economy until the middle of this year.

One indication that stimulus money has made no impact yet is that institutional billings have reached new record lows, hitting 36.8 last month down from 37.1. Historically, the institutional sector has remained strong during downturns because schools, hospitals, and governments tend to build, especially because labor and materials are cheap. The continued deterioration of the institutional work suggests just how pervasive the current recession really is.

Meanwhile, the residential sector saw a decent uptick to 33.3 from 29.5, which jibes with recent home starts. The mixed-use sector was up slightly to 40.1 from 39.6—that sector’s historic low—but the commercial/industrial sector slid further to 32.0 from 33.8, though still above its all-time low in November of 26.7. Regionally, there were gains and losses of a point or two, though the Northeast, Midwest, South, and West are all still languishing in the mid- to low-30s.