ABI Index Falls
The American Institute of Architects' Architecture Billings Index, or ABI, a leading economic indicator of non-residential construction activity 9-12 months into the future -- fell 3.3 points to 42.8 in November after reaching the highest level in more than a year in October. The reading remains firmly below 50 -- meaning billings are still declining -- as it has since January 2008.
We are not going to comment on the Inquiries sub-index, as we've discovered that the reason this figure has remained consistently over 50 -- seemingly indicating improving trends -- is that there has been no ability to adjust for double-billing, so it's truly a meaningless and misleading sub-index. However, the overall ABI Index remains a solid indicator.
Sectoral Indices Show Further Improvement
While three of the four sectoral indices we track rose in the month, all four sectors showed weakness and the indices remained below 50, indicating that billings have continued to fall in the last three months.
The Mixed Practice index jumped by 3.0 points to 42.8 -- the highest monthly increase we have seen in two years, bringing the index out of the last place position it has held since July. The Commercial/Industrial index climbed 0.7 points to 40.7 and there was a 0.4-point uptick to 45.8 in the Residential index. While the Institutional index continues to be the highest of the sectoral indices, it declined for the first time in five months, falling 0.9 points to 47.0.
Obviously the institutional index will lag the others as these projects -- schools, hospitals, etc. -- have the longest lead time.
Regional Averages Mostly Up
Three of the four regional indices also rose during November, but all four indices remained below 50. The Southern index rose for the sixth month in a row, climbing 1.0 points to 46.4, the highest level since July 2008. The Northeast index increased 0.5 points to 45.0, while the Midwest index posted an uptick for the sixth consecutive month, rising 0.4 points to 43.7. The index for the West, which has been the weakest region during the current recession, fell another 0.4 points to 41.1.
We view this as a two-steps-forward-one-step-back phenomenon. The overall index has bounced around the low 40s for most of the year and we continue to believe a meaningful rise in construction activity won't happen until we see some sustained improvement in both labor and credit markets.
Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.