Real Estate

Architects' billings in August signal construction slump

Steep drop in US construction
Steep drop in US construction

A leading indicator of commercial construction activity took a steep drop in August, possibly due to increased volatility in financial markets.

The American Institute of Architects reported its Architecture Billings Index (ABI) dropped from 54.7 to 49.1. Anything below 50 indicates a decrease in design services.

Jetta Productions | Getty Images

"Over the past several years, a period of sustained growth in billings has been followed by a temporary step backwards," said AIA Chief Economist Kermit Baker. "The fact that project inquiries and new design contracts continue to grow at a healthy pace suggests that this should not be a cause for concern throughout the design and construction industry."

The ABI reflects the time between architecture billings and construction spending for commercial real estate, which is approximately nine to twelve months. Another index of new projects inquiries also fell in August, although it was still positive.

"I do think that volatility is the issue, just like we're seeing in a lot of the markets across the country. We're not seeing a normal incline in terms of activity. It shoots ahead and then it catches its breath," said Baker.

He also points to hurdles facing builders, which include high material costs and labor shortages.

What this number tells us about commercial real estate in 12 months

The construction industry has been plagued by a labor shortage. Eighty-six percent of construction firms surveyed in July and August by Associated General Contractors of America said they were having difficulty filling hourly craft or salaried professional positions.

"Few firms across the country have been immune from growing labor shortages in the construction industry," said Stephen Sandherr, CEO for the Associated General Contractors, in a release. "The sad fact is too few students are being exposed to construction careers or provided with the basic skills needed to prepare for such a career path."

Thousands of immigrant construction workers also left the U.S. during the recession and have yet to return.