Construction Outlook Remains Bright Spot in U.S. Economy

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Despite rising oil prices, turmoil in the credit markets and wider worries about the U.S. economy, construction activity continues to grow and show signs of more growth ahead.

The American Institute of Architects (AIA) [link:] Architecture Billing Index (ABI) indicated stronger growth in October, following a sharp downturn in August and September.

The Index score of 53.2 last month was slightly better than the September rating of 51.1. (Any rating over 50 indicates an increase in billings, generally considered to be a 9 - 12 month leading indicator of construction activity.) In August the ABI hit 53.9, which was a six point decline from the previous month. Until the summer, the ABI was charting near-record billing increases.

In October, inquiries for new work scored a strong 58.1, although this was the lowest rate of growth in a year and a half, according to the AIA.

The institutional sector was strongest in October, while the residential sector continued to be the weakest. Business in the commercial/industrial sector slowed last month, but maintained healthy growth overall.

God economic news in the third quarter also bodes well for the construction outlook, according to Jim Haughey, chief economist for Reed Construction Data. (Link: GDP grew at a 3.9% rate in the third quarter, although the trend for next year indicates more modest growth of 2.5%, Haughey wrote.

"While subpar, this is enough to keep nonresidential construction expanding," and to cushion fallout from the weakness in the residential market," he explained.

"It is now clear that the housing collapse will not have a significant negative impact on the balance of construction or the broader economy," he wrote. "The $91 billion drop in new residential investment over the last year has been overwhelmed by the $40 billion increase in nonresidential investment, the $80 billion improvement in the trade deficit and the $239 billion increase in consumer spending."

This good news will boost shaky consumer confidence and improving housing affordability will translate into more home buying by the end of this year, he added.