We’ve lived and worked through one of the longest economic expansions in history. So what’s coming next? The more I study it, the more confused I get – but here are some of the facts and trends as I see them.
The US Consumer is strong and is keeping our economy growing. The unemployment rate remains below 4%. Gross Domestic Product is still above 2%, and the stock market continues to push all-time highs. On the other side of that coin, there’s still a lot of economic uncertainty. We have an ongoing trade war with China. International central banks are keeping their interest rates below zero. The US Federal Bank is balancing between a strong US dollar, a strong economy and a political push for lower interest rates.
Confused? Me too. I study the construction numbers that I understand – the Architectural Billing Index (ABI), the Associated Builders and Contractors’ Backlog Indicator, and the FMI Non-Residential Construction Indicator NRCI). These three indicators are generated by industry-specific groups taking surveys from their members. I participate in both the ABC and FMI surveys.
If I look at the three surveys individually, here is what I think is next.
ABC’s Backlog Indicator has been running very consistent between 8-9 months. I participated in the survey on August 25th and calculated our backlog at 8.8 months. We’ve been between an 8-11 month backlog during the past three years – so I don’t see an immediate concern.
FMI’s NRCI is an executive opinion of the construction industry’s health. Above 50 is positive, and tends to fluctuate between low-40s and high-50s. This current survey results of 53.3 support the results seen in the ABC Backlog survey. Together these two measurements show a construction industry that continues at a steady, positive pace.
However, the true lead indicator for our industry is the AIA Architectural Billings Index. This survey has a baseline of 50. If fees are growing, the survey results are above 50, and if fees are shrinking, the results are below 50. This indicator is pretty accurate and shows me what construction looks like 8-12 months from now. The past five months shows fees holding steady to decreasing. This tells me that I am going to have to work harder to find construction opportunities in the spring of 2020.
Moving forward, I will keep a close watch on the ABI and our backlog levels to see how they correlate. I will share some of the early results in the 3rd Quarter Economic Indicator report.
I invite you to share what you see from these three indicators (ABC Backlog Indicator, AIA ABI, FMI NRCI). Where do you think the economy is going next?