Earlier this month I suggested that we have a few glimmers of hope emerging from the dark clouds that have swallowed up the US housing market: Signs Of Life From The Housing Sector. These included the forecasting power of lumber futures and the broad base building in many stocks in this sector.
Here is another sign of life from the real estate market:
David Wilson writes in his daily ‘Chart of the Day’ column for Bloomberg that the American Institute of Architects’ (AIA) Architecture Billings Index (ABI) rose in December to 54.2 (from 52 in November 2010). This is the highest level of activity since November 2007. Comparing the ABI with the year over year percentage change in non-residential construction spending, we can see the forecasting prowess of this indicator:
Source: David Wilson (Bloomberg)
The AIA Billings index is a monthly survey of architectural firms asking them simply to report if they have increased, decreased or maintained their billing hours in the past month. Obviously, architectural firms billings are the first sign of an uptick in construction projects. A number above 50 indicates an aggregate increase in billings while a number below indicates a decline. The survey results are seasonally adjusted to allow for comparison across time.
While this is technically an indicator of commercial real estate activity, it does bode well for the sector in general. The calls for a commercial housing implosion were pretty loud last year. But this forward indicator suggests that the death of the US commercial real estate market was more than premature.
Another index from the AIA measuring customer interest in future projects (a forward forward indicator, if you will) was also showing a robust level of interest, reaching the highest level since July 2007. For more information, see this white paper discussing the ABI as a leading indicator of construction activity.