Architectural Billings Slowdown Eased in September

A slight improvement in business conditions has led to fewer architecture firms reporting declining billings, according to a report from the American Institute of Architects (AIA). AIA’s ABI score for September was 47.0 compared to 40.0 in August (any score below 50 indicates a decline in firm billings).

Overall revenue at U.S. architecture firms continued to decline from August to September, however, the pace of decline slowed significantly. Inquiries into new projects during September grew for the second time since February, with a score of 57.2 compared to 51.6 in August. The value of new design contracts moderated to a score of 48.9 in September from 46.0 the previous month.

“Despite the multifamily residential sector showing signs of improvement, overall business conditions are recovering at a disappointingly slow pace,” says AIA chief economist Kermit Baker. “Other sectors may begin to stabilize in the coming months, but across the board improvement shouldn’t be expected until the economic impact of the pandemic subsides significantly.

Dodge Momentum Index Increases in September

The Dodge Momentum Index rose 3.7% in September to 130.8 (the year 2000 = 100) from the revised August reading of 126.2. Both components of the Momentum Index rose during the month. The commercial component rose 3.9% while the institutional component moved 3.2% higher.

The Momentum Index has made steady, albeit slow, progress since its June low point. In the third quarter, the Momentum Index gained 2.2% over the previous three months. The commercial side of the Momentum Index gained 7.4% in the third quarter led by a large number of warehouse projects entering planning as e-commerce retailers such as Amazon Inc. continue to push projects forward. Somewhat surprising is that office projects entering planning also posted a tepid gain despite concerns that office work is shifting to remote settings. The institutional component, however, lost ground in the third quarter, dropping 6.8%. Education projects have borne the brunt of this drop as state and local government revenues declined, creating the need for 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 Retreat in September

Total construction starts dipped 18% in September to a seasonally adjusted annual rate of $667.7 billion, essentially taking back August’s gain. While some of this decline is payback from several large projects starting in August, the drop in activity brought total construction starts below levels seen in June and July. Nonresidential starts fell 24%, while residential building dropped 21% over the month. Nonbuilding starts were 5% lower than August.

For the 12 months ending September 2020, total construction starts were down 8% from the 12 months ending September 2019. Nonresidential building starts were 19% lower, nonbuilding starts were 11% lower and residential building starts rose 4%.

Nonresidential building starts were down sharply over the month of September, falling 24% to $177.4 billion. There was little good news in the detail: institutional starts fell 8%, manufacturing starts were 48% lower and commercial starts dropped 36%. Only two building types posted a gain in September—retail and public buildings.

Year-to-date through nine months, total nonresidential building starts were down 26%. Commercial starts declined 27%, while institutional starts were 18% lower. Manufacturing starts dropped a painful 56% compared to the first nine months of 2019. For the 12 months ending September 2020, total nonresidential building starts slid 19%. Institutional building starts were 16% lower, commercial starts down 19% and manufacturing starts plummeted 30% in the 12 months ending September 2020.

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