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What the Experts are Saying About Construction Spending

Market indicators for construction activity point upward. Risk management specialist Bill Tryon interprets the latest figures.

By Bill Tryon | Updated on August 13, 2014

Construction spending is generally tied to macroeconomics so as the economy is in fuller recovery, I would expect construction spending to be up too.  Indeed, according to the most recent data from the Department of Commerce, the value of construction put in place in June is up 5.5% over the same month in 2013.  However, month over month totals have been fairly flat since January.  Review of the Architectural Billings Index, produced by the American Institute of Architects (AIA) Economics & Market Research Group, indicates likely continuation of this trend in the short term, with seasonal adjustments in winter and spring.

In recent years, the Architectural Billings Index has been a reasonably accurate indicator of construction spending, typically leading the market by 11 – 12 months.  Beginning in November, 2013, the index fell below 50, indicating a material decline in billings, and probability for a corresponding decline in construction spending in the winter of 2014.  Since May, the index has returned to positive territory, with the most significant improvements in multifamily, commercial and industrial billings and relatively flat billings for institutional properties.

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