ABI in August Shows Little Improvement

Business conditions remained stalled at architecture firms during August as demand for design services  continued to decline, according to a report from the American Institute of Architects (AIA).

The pace of decline during August remained at about the same level as July and June, posting an Architecture Billings Index (ABI) score of 40.0 (any score below 50 indicates a decline in firm billings). Inquiries into new projects during August grew for the first time since February, and the value of new design contracts increased to a score of 46.0.

“Unfortunately, since the start of the COVID-19 pandemic, many architecture firms are finding fewer inquiries that convert to billable projects,” says AIA chief economist, Kermit Baker. “While fewer firms reported declining billings in August than during the early months of the COVID-19 pandemic, the fact that the score has been unchanged for the last three months shows that the recovery from this downturn is not progressing at the pace we had hoped to see.”

Dodge Momentum Index Inches Up in August

The Dodge Momentum Index increased 1.8% in August to 126.5 (the year 2000 = 100) from the revised July reading of 124.2. In August, the commercial component rose 3.3%, while the institutional component moved 1.2% lower.

The August increase in the overall Momentum Index is the second consecutive rise and a further sign that the construction sector continues to post a modest recovery following the large declines in April and June. The commercial component has risen 9% from its June low and is just 13% below its 2018 peak. The institutional component, however, has declined for five consecutive months and has yet to hit bottom. The institutional component is now 34% below its recent peak. Public work is suffering as state and local government revenues have declined, creating budget cuts across the country.

The Momentum Index, issued by Dodge Data & Analytics, 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 Post Solid Gain in August

Total construction starts rose 19% in August to a seasonally adjusted annual rate of $793.3 billion. Gains were seen in all three major building sectors: nonresidential building starts rose 16% and residential building climbed 12%, while nonbuilding construction jumped 40% over the month.

For the 12 months ending August 2020, total construction starts declined 6% from the 12 months ending August 2019. Nonresidential building starts fell 13% and nonbuilding starts were 9% lower, while residential building starts rose 3%.

“Construction starts continue to make up ground following the nadir in activity in April,” says Richard Branch, chief economist for Dodge Data & Analytics. “Residential and commercial construction are driving the gains, while the public side of building construction is proving to be a drag on growth. The regional pattern has also evened out with gains in starts seen in every region but the Midwest in August—somewhat muting the concern over the potential impact of rising COVID-19 cases in the South and West.”

Nonresidential building starts in August were aided by large projects in the office and manufacturing sectors, leading to an increase of 16% to $236.7 million. Commercial starts rose 36% and manufacturing starts soared 201%. Institutional starts, however, fell 7% despite small gains in education and healthcare.

Over the 12 months ending August 2020, total non-residential building starts were down 13% from the 12 months ending in August 2019. Commercial starts were 16% lower, institutional starts were down 13% and manufacturing starts slipped 1%.

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