WHAT IS Architecture Billings Index - ABI
The Architecture Billings Index (ABI) is a leading economic indicator of demand for non-residential construction activity. This includes both commercial and industrial building. A positive ABI can be a sign of strength or recovery in the broader economy, while a negative ABI can signal weakness or a coming downturn.
BREAKING DOWN Architecture Billings Index - ABI
The Architecture Billings Index (ABI), produced by the AIA Economics & Market Research Group, is based on responses to the American Institute of Architects', or AIA's, monthly Work-on-the-Boards survey, which asks the principals and partners of AIA member-owned architecture firms whether their billing activity for the previous month grew, declined or remained flat. The AIA, headquartered in Washington, D.C., has been collecting data from its members through this survey for over 20 years.
The ABI offers an approximately 9- to 12-month glimpse into the future of nonresidential construction spending activity. Commercial and industrial building activity includes the construction of hotels, office buildings, multi-family residences, schools, hospitals and other institutional buildings. Monthly results are seasonally adjusted to allow for comparison to prior months. The regional and sector data are formulated using a three-month moving average. The change in billing activity provides insight into the level of demand for design services from architecture firms, which in turn provides insight into the level of interest in constructing new buildings.
A score of 50 indicates balance between positive and negative reports, while a score of 100 indicates all firms reported improvements. A rise in the index above 50 means that more firms reported an increase in demand for design services than reported a decline in demand. It's important to note that a rise in the index above 50 is not a direct measure of the rise in demand, because the survey does not ask firms reporting stronger demand to quantify the level of increase in demand, nor does it provide information on the size of those firms. That being said, higher readings in the ABI generally coincide with growing demand. The ABI affects numerous types of businesses, from architecture firms to reprographics companies to contractors. Design and construction firms consult ABI when doing strategic planning and determining business-cycle shifts and as it is a good indicator for market fluctuations and construction trends. The AIA also offers an Inquiries Index, which measures potential business as opposed to actual business.
Comparing ABI with Other Economic Indicators
Financial experts and advisors look at the ABI in combination with other economic indicators such as New Home Sales, lumber futures prices, and Gross Domestic Product, or GDP, data. For instance, Tom McClellan of The McClellan Report claims ABI examination is particularly useful as it correlates well with GDP numbers, and is provided on a monthly basis instead of the quarterly GDP issuances. In his analysis, McClellan also points to the correlative relationships between ABI, lumber futures prices and New Homes Sales.