The AIA is reporting that the Architectural Billings Index (ABI) continues its decline. The May report shows the ABI dropping to 47.2 from the previous month of 47.6.
The ABI is based on reports from its members who report increases or decreases in billings and inquiries. The scale is based on a neutral number of 50; whereas numbers higher than 50 represent an increase in billings and numbers lower than 50 represent a decrease in billings.
The scale is also a forward looking metric to indicate the amount of construction activity approximately 9 to 12 months ahead.
The current (increase) in construction that we are experiencing today represents the run up in the ABI from the period of August 2010 ~ October 2010 when the ABI started to rise. The ABI reached a peak of 54 in Dec. 2010 / Jan. 2011 which means that we can expect an increase in construction activity for approximately two more months (until September 2011) after which construction activity will begin to drop dramatically, as represented by the ABI falling since January 2011.
Unfortunately, there is more bad news.
The Commercial Property Price Index (CPPI) continues on its decline since December 2007. It is now at its lowest (.95) since it began recording in 2001. This represents a 48.95% drop from the index’s peak in October 2007. Coupled with office vacancy rates at a staggering 18% and private investment in office construction not just at its lowest level since records began in 1959, but a full 20% lower than the all time (record) low set in 1977, the probability of a double dip recession is extremely high and quite troubling.
It gets even worse.
President Obama’s “tax the rich” strategy includes a proposal to double the tax applied to capital gains, and close “loopholes” used by hedge fund managers and venture capital funds; the primary mechanisms used by developers to build commercial properties. Should the Republicans cave into the Presidents demands for higher taxes in the debate over our nation’s debt, they would likely destroy the already fragile commercial real estate market; and subsequently, Architectural and Engineering Services along with it.
As it turns out, those “evil rich people” who President Obama has so much distain for, are the same people who hire Architects, Engineers & Construction Companies. They are the same people who are responsible for 28% of the Gross Domestic Product of this nation.
Perhaps it is best not to stick your middle finger in the eye of the very people who offer us the only hope of recovery from this recession…just a suggestion Mr. President.