From ISM manufacturing to retail sales to this week's disastrous Richmond Fed Survey, the number of economic reports missing consensus expectations in recent weeks is something of which investors should take note. One economic report that doesn't receive much attention but serves as a leading indicator of nonresidential construction activity is The American Institute of Architects' (AIA) "Architecture Billings Index" (ABI). The ABI is a diffusion index from the AIA's monthly "Work-on-the-Boards" survey, a survey that asks whether billings increased, decreased, or stayed the same in the month that just ended. The ABI is designed to act as a 9 to 12 month leading indicator of nonresidential construction spending, and it's not looking so good.
If you are a shareholder of Ingersoll-Rand (IR), Eaton Corporation (ETN), Illinois Tool Works (ITW), The Manitowoc Company (MTW), Oshkosh Corporation (OSK), or a whole host of other companies exposed in some way to nonresidential construction spending, you should take a look at the numbers that follow and continue to watch the ABI closely over the coming months.
In the table below, you will find the ABI's headline number for each month in 2012. A number above 50 indicates an increase in billings and a number below 50 indicates a decrease in billings.
As you can see, June was the third month in a row of a decrease in billings, and the headline ABI is now firmly below 50. When looking at the regional components, all four regions, the Midwest, South, Northeast, and West, are below 50. Currently, the West is the weakest at 44.3, and the Midwest is the strongest at 48.0. One positive sign in the most recent ABI is project inquiries, which continues to hold above 50, at 54.4. However, this is lower than the consecutive months of above 60 readings that the project inquiries number was enjoying earlier in 2012.
If you are a shareholder in any of the aforementioned companies as well as in other companies with exposure to nonresidential construction, add the AIA's monthly "Architecture Billings Index" to your watch list of economic reports. Rather than waiting for quarterly guidance from companies, a monthly look at architecture billings can be one tool to help shape your outlook for certain stocks. Furthermore, by adding a less widely followed leading indicator, you may gain insight into the underlying health of the economy that others will not figure out for several months to come. At the moment, the ABI is yet another sign of a weakening U.S. economy, and investors should take note.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.