One of the problems with recessionary news is that even good news is still bad news. Such is the case with yesterday’s release of the AIA’s Architecture Billings Index, which saw a 5.4-point jump from June to July, though the numbers for payments to firms remain in an overall decline. And inquiries for new work have dropped 3.5 points, continuing a three-month slide.
At first blush, the numbers are encouraging, coming on the heels of dismal declines in June. “This movement in June was a little odd, so at least we bounced back from that,” Kermit Baker, the AIA’s chief economist, said in an interview. But now that billings are back to the low 40s, as they were from March through May, the industry has returned to a familiar holding pattern. “We appear to be moving sideways,” Baker said. “It’s better than down, but it’s also not up, which is a concern.”
In July, billings rose to 43.1 from 37.7 in June. Inquiries fell to 50.3 from 53.8 and a high of 56.8 in April. (A reading above 50 means billings and inquiries are rising, a number below means they are falling.) While the inquiries news provides small comfort—not better, but at least not worse—Baker sees the decline as unsettling.
Normally, inquiries are a leading indicator of interest in new work, but Baker believes that the recession has actually lead clients to “cast a wider net,” considering additional firms for what little or new work there is. Many are believed to be doing this to drive down costs, meaning that higher inquiries, at least without commensurate movement in billings, could actually be a bad sign.
“Construction is clearly mired in a recession,” Baker said. “It’s not as bad as six months ago, but it’s still a recession. And there’s been no continual signs of recovery yet.”
The South is now the strongest region, reaching 43.4 in July, up from 40.5 and a turnaround from a three-month slide. The Midwest has risen slightly to 36.9 from 36.2 but remains the worst performing sector. The West fell slightly to 39.7 from 39.9, recording a reading at 39 for the fourth straight month. These struggles and relative successes can be pegged to the local economies—oil and commodities in the South, automobiles and industry in the Midwest, housing and California’s woeful budget in the West.
The Northeast, by comparison, has swung from strongest to weakest to strongest throughout the past year and it is back down again, falling for the third month to 37.8 from 42.8 in June. Baker attributes this to the diversity of the region, both a boon and a bane. “Just as soon as one sector begins to recover, another gets hit,” he said.
Performance in the sectors is equally mixed. Multifamily residential, after a rally in the spring, has now fallen for three straight months, to 40.7 in July, down from 42.7 the prior month. Commercial/industrial is up to 42.9 from 39.5 in June, though it has whipsawed up and down for each of the last five months.
Weakest of all remains institutional work at 37.1, a paltry .1 rise from the month before, continuing the months-long slide in what is normally a recession-resilient industry. And mixed-use work continues to be relatively strong, dropping slightly to 42.9 from 43.5, though that sector has held in the mid-40s for almost the entire year.
While the uptick seen this month in overall billings could continue, Baker sees no reason why it would. “I have a hunch we’re going to be in the mid-40s for the next six to eight months,” he said. “There’s nothing to turn this up. It’s just kind of mediocre everywhere.”