February 3, 2010

U.S. Architecture Index Up Slightly In December

NEW YORK - A leading indicator of U.S. nonresidential construction spending rose slightly in December, but remains at a depressed level as limited credit continues to hamper building plans, an architects' trade group said on Wednesday.

The Architecture Billings Index was up 0.6 points at 43.4 last month, according to the American Institute of Architects. The index has remained below 50, indicating contraction in demand for design services, since January 2008. Its lowest recent reading was 33.3 in January 2009.

"The main impediment to an economic turnaround for the design and construction industry remains frozen credit markets," said AIA Chief Economist Kermit Baker.

A measure of inquiries for new projects fell more than 3 points to 55.3, its weakest reading since August. This measure has been higher than the billings index for several months, partly reflecting increased competition among architecture firms for the same projects.

All four U.S. geographic regions stayed below 50 in December, as did three of the four construction sectors. Billings for apartment buildings, however, ticked above 50 for the first time since December 2007, suggesting construction of multifamily dwellings may rebound in coming months.

The AIA has said weakness in U.S. nonresidential construction will persist in 2010 before giving way to a mild rebound in 2011.

Nonresidential construction includes commercial and industrial facilities such as hotels and office buildings, as well as schools, hospitals and other institutions. The AIA's Billings Index, which began in 1995, is considered a measure of construction spending nine to 12 months in the future.

Typically, as a recession ends and jobs pick up, employers begin to add facilities or rehabilitate existing ones. But the process can take years. After the 2001 recession, billings did not recover until 2004, and the current downturn has been more severe than the previous one.

Companies that sell to construction markets include diversified manufacturer Honeywell International Inc, lighting maker Acuity Brands Inc, electrical components maker Thomas & Betts Corp, and heating and cooling systems makers Ingersoll-Rand Plc and Johnson Controls Inc.

Caterpillar Inc, Deere & Co, Terex Corp, Illinois Tool Works Inc, Parker-Hannifin Corp and Eaton Corp also derive a portion of their revenues from this sector.

Source: Reuters, January 20, 2010

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