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Architecture Billings Index says Q3 GDP should be muted

Chart In Focus
October 25, 2012

The preliminary report of 3rd quarter GDP for the U.S. is due out on Friday, Oct. 26, and so far the consensus expectation is for a rise of 1.9%.  But my analysis of the data from the American Institute of Architects shows that the Q3 number could be even lower than that.

What the AIA does is to survey its member firms to see what they have to say about both actual billings from current customers and inquiries about potential new projects.  The two pieces of data are reported each month by the AIA, and I have found that they give good information about what the GDP numbers are likely to do. 

This week's chart compares a 6-month simple moving average of the "inquiries" data (as opposed to the actual billings which the AIA also tracks).  It makes a pretty good model for what overall GDP will do.  The implication is that Q3 should see a drop in growth rate versus Q2, but still positive. 

The ABI data and GDP data are concurrent in real time (i.e. no leading indication), but in reporting time there is a lag due to the delay in getting out the GDP data.  So by watching what the monthly reports of the ABI data have been saying, we can get a really good idea of what the GDP numbers will be.  We have to keep in mind, though, that what the statisticians report for the preliminary GDP number may differ quite a bit from the later final numbers, and indeed they may differ from real life.  But for anyone who finds it useful to watch the reports on GDP, this ABI data can be a useful way to model that data. 

Interestingly, we are also just hearing bullish reports out of some of the big nationwide homebuilding companies.  But we should all filter that bullishness through an examination of what the ABI data have to tell us about home sales.

This next chart looks at the raw monthly ABI Inquiries data versus home sales as reported by the Census Department.  

ABI Inquiries vs New Home Sales

The Inquiries data saw a spike peak in February 2012, but has remained pretty tepid since then.  So the Architecture Billings Index data is not yet saying that a big spike up in new home sales is looming anytime soon.  It is worth noticing in this chart that the most recent readings on new home sales are still not even back up to the incentive-fueled levels seen in 2009 and early 2010.  So to paraphrase what Mark Twain once said about his own death, rumors of a huge housing recovery may have been greatly exaggerated. 

For more information or would like to subscribe to the Architecture Billings Index dataset, please contact James Chu, Director of Market Research at the American Institute of Architects, or (202) 626-8045.

Tom McClellan
Editor, The McClellan Market Report

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