Is architecture a better economic indicator?

Should we drop the Baltic Dry Index for the monthly survey that tracks the design and building industry?
Written by Sun Kim, Contributor

Want a better indicator of the economic times to come? Watch the architects. More specifically, David Cottle of the Wall Street Journal suggests that we watch the monthly survey architects use to track the health of the design and building industry.

It’s not a bad idea, since during the recession the percentage of unemployed professionals in architecture closely matched, and by most accounts surpassed, the national unemployment rate. And the current trend of more firms cautiously hiring, and even hiring back designers they let go, mirrors the general employment atmosphere.

Before and during the recession, the financial indicator to follow was the Baltic Dry Index, which tracks bulk-shipping costs. Recently, however, the current BDI lows reflect the specific economic atmosphere of the shipping and distribution industry and not so much of the general economy. Cottle writes that the Architecture Billings Index (ABI) from the American Institute of Architects gives a more accurate look at what's ahead.

Also known as the Work-on-the-Boards survey, the ABI numbers are developed by surveying architects, tracking whether billings increased, decreased, or remained the same over the past month. While the index surveys design firms, it also reflects the approximate nine to twelve month lag time between architecture billings (design and documentation work) and construction spending. So the ABI is a pretty good forecaster of the health of the broader economy a year ahead.

The good news? The ABI showed a positive trend over the last quarter. The not-so-bad-but-not-outstanding news is that the latest reading is up only .1 from the previous month. So while not falling, the numbers indicate that we haven’t completely rebounded either.

As the AIA’s chief economist Kermit Baker notes,

“This is more good news for the design and construction industry that continues to see improving business conditions. The factors that are preventing a more accelerated recovery are persistent caution from clients to move ahead with new projects, and a continued difficulty in accessing financing for projects that developers have decided to pursue."

Is Architecture the New Shipping? [WSJ Online]

Infographic: AIA

This post was originally published on Smartplanet.com

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