ABI Index Bumping Along: The ABI (Architecture Billings Index) was virtually unchanged in March, dropping from 50.6 to 50.5, a negligible decline. The New Project Index – which we do not trust entirely – jumped from 56.4 in February to 58.7 in March. We’ll hope that this is meaningful but continue to point out that the inquiry index loses meaning as a leading indicator to the extent that multiple bids are not accounted for. While data doesn’t have the capability to show this, the AIA points to a seeming bi-modal distribution of business conditions in the sector, with some architects reporting meaningful pick-up in their business and even ramping up staffing while others reporting ‘survival’ mode levels.
Sectors Mixed But Basically Stable at Low Levels: While the Residential and Commercial/Industrial Indices showed nominal increases in the month – rising from 50.5 to 50.8 and 54.1 to 54.7 respectively – the Institutional and Mixed Practice Indices declined in the month by similar orders of magnitude. While on a trendline basis, these indices have all been slowly rising the past six-nine months, the trend has leveled out during the first quarter of the year. We’d point out that the indices are three-month-rolling averages so that trends are far more durable than a more volatile point estimate might be.
Three Regions Rising Only Nominally, One Down: Reflecting the same kind of “stagnation at moderately higher levels” as the sector indices, three of the regional indices rose in the month, with the lone hold-out being the Midwest, which had actually been stronger than most, starting the year at 55.3, the highest reading for any sector since before the start of the recession in late 2008. The West Index rose for the seventh straight month in March, increasing 49.5 to 50.6 for the highest level since August 2007. The Northeast saw real strength in the month, rising from 49.0 to 51.4, reversing a five-month declining trend with a nice pickup. The Midwest Index dropped for the second month in a row from 54.8 to 53.5, while the south bucked a three-month-in-a-row losing streak rising from 49.6 to 49.7; kind of unchanged, but we’ll take the good news where we can find it.
Outlook: With the flattening out of the strength in the ABI Index we’d seen late in 2010, it’s appearing more and more that the construction market is going to continue to have a rough time of it. While we see increasing industrial projects on the books – that’s the good news – the new projects are simply not replacing the projects that are finishing up and it’s showing up in steel demand. Although the index has now seen readings at 50 or above for five out of the last six months, we believe the bouncing around 50 reflects the slow pace of recovery we are likely to continue to see in the non-residential construction market. While we continue to believe that we’re past the bottom, we think the road ahead will continue to be rocky with little visibility given the ongoing uncertainty and lack of confidence the relevant players continue to have in the U.S. economy.
To see a real revival in long-lead time construction projects in this country, we believe that the government needs to take tangible steps to restore faith in the basic drivers of this country – addressing issues like the swelling trade deficit, budget deficit and our crumbling infrastructure will remain key.
Disclosure: I am long NUE, CLF, RS.