ABI Remains Negative, Begins to Stabilize

Demand for design services from architecture firms began to stabilize in June, following their peak declines in April, according to a report from the American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for June was 40.0 compared to 32.0 in May. The May ABI score indicates that a significant share of architecture firms still saw their billings decline from May to June, however the share reporting declines slowed significantly. Index scores for new project inquiries and new design contracts also showed signs of stabilizing, posting scores of 49.3 and 44.0, respectively.

“While business conditions remained soft at firms across the country, those with a multifamily residential specialization saw the most positive signs,” says AIA chief economist Kermit Baker. “Unfortunately, conditions at firms with a commercial/industrial specialization are likely to remain weak for an extended period of time, until hospitality, office and retail facilities can fully reopen, and design demand for this space begins to increase.”

Dodge Momentum Index Loses Ground in June

The Dodge Momentum Index dropped 6.6% in June to 121.5 (the year 2000 = 100) from the revised May reading of 130.1. The institutional component of the Momentum Index fell 11.7% while the commercial component declined by 3.5%.

The Momentum Index has shifted noticeably lower as the fallout from the recession continues. The overall Momentum Index fell 13% in the second quarter from the first three months of the year, with the commercial component 14% lower and the institutional component down 11%.

While the recession has ended and recovery is underway, the return from one of the steepest downturns in U.S. history will be slow and fraught with risk, according to Dodge. This holds true for the construction sector as well. While projects continue to enter planning, the slower pace suggests recovery will be modest in coming months.

The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.

Construction Starts Show Additional Gains in June

Total construction starts increased 6% in June to a seasonally adjusted annual rate of $641.4 billion. This marks the second consecutive monthly gain in construction starts following the COVID-19 induced declines in March and April. In June, nonresidential building starts gained 6% and starts in the nonbuilding sector moved 27% higher. Residential starts fell 6% during the month.

Through the first six months of the year, starts were down 14% from the same period in 2019. Nonresidential  starts fell 22%. For the 12 months ending in June 2020, total construction starts were down 2% from the previous 12 months. Nonresidential building starts were down 7%.

“Construction starts should continue to post modest gains in the months to come as the economy continues to recover from the shortest and steepest recession in U.S. history,” says Richard Branch, chief economist for Dodge Data & Analytics. However, the recent acceleration in new COVID-19 cases in states such as Texas, Florida and California is a significant downside risk to the economy and the construction industry’s growth trajectory.”

Nonresidential building starts moved 6% higher in June to a seasonally adjusted annual rate of $198.5 billion. Institutional building starts rose 15% during the month, while commercial building starts moved 4% higher.

On a year-to-date basis, total nonresidential building starts were 22% lower than the first six months of 2019. Institutional building starts were down 15% while commercial starts were 27% lower. On a 12-month total basis, total nonresidential building starts were 7% lower than the 12 months ending June 2019. Commercial starts have dropped 8%, while institutional starts were down 9%.

To view the laid-in version of this article in our digital edition, CLICK HERE.