Thursday, March 25, 2010

Billings remain in slow decline, turnaround coming?

In “another plain vanilla month,” the American Institute of Architects’ monthly tracking of design activity showed some signs of life, jumping more than two points to 44.8 in February, up from 42.5 in January.

Despite the increase, the sub-50 score in the AIA’s Architectural Billings Index still reflects a decline in billings activity for the month. New project inquiries continued their trend of scores above 50, at 52.0 for February, but AIA Chief Economist Kermit Baker says he’s still waiting for that to translate into new work for the industry.

“We got back most of what we lost (in January), but (the ABI) has been in the low to mid-40s for almost a year now,” Baker tells ZweigWhite in an exclusive interview. “We’re still waiting for something to put it over the top.”

Baker maintains “a feeling in my bones” that the ABI will return to scores of 50 or higher in the middle of the year, based largely on “encouraging signs from the broader economy,” and the history of the three most recent recessions. In those, Baker says, it’s taken about two or three quarters for a turn in the stock market to reach the bottom of the economic barrel, another two quarters to register an uptick in the labor market and payrolls, and another two or three quarters for design activity to turn around.

“There’s nothing we need to resolve,” Baker says. “All that’s missing is a general feeling of confidence that the economy is going to continue to recover. This recession is somewhat unique in how severe it’s been, but it’s not that different from what we’ve seen and been through in the past.”

Baker sees April and May as the likely months for growth in employee payrolls, and expects design activity to increase soon after that happens.

“Once companies start bringing back their employees, they’re going to start thinking about adding space,” he says. “That’s the process we’re looking at. We’re on a path for this to play out in a fairly typical recovery pattern.”

As for the shape of this recovery, Baker sees no reason to fear the worst, as some forecasters do.

“Everyone’s nervous that we’re going to see a W-shape or a U-shape, when really I don’t think there’s any evidence to support that,” he says.

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