Reuters reported that a leading indicator of US non residential construction activity fell for the third consecutive month in June 2011, suggesting an anticipated construction recovery was still several months away.
According the American Institute of Architects, the Architecture Billings Index fell 0.9 point to 46.3 points in June 2011. Any reading below 50 indicates contraction in demand for architects' services, whose revenue predicts construction activity nine to 12 months in the future.
A separate index of project inquiries rose, however, to 58.1 from 52.6 in May 2011. This measure is typically higher as multiple architecture firms compete for the same work.
Mr Kermit Baker chief economist at AIA said that "While a modest turnaround appeared to be on the way earlier in the year, the overall concern about both domestic and global economies is seeping into design and construction industry and adding yet another element that is preventing recovery."
According to the monthly survey of architecture firms, demand is weakest in the institutional sector that includes government buildings, reflecting depressed government budgets.
Mr Baker said that "The threat of the federal government failing to resolve the debt ceiling issue is leading to higher borrowing rates for real estate projects. Should there actually be a default, we are likely looking at a catastrophic situation for a sector that accounts for more than 10% of overall GDP."
Ms Ann Duignan analyst at JPMorgan said that commercial property values fell to new lows in April and office vacancy rates are well above pre recession lows. She added that "The recovery has yet to find solid ground and that the non residential construction environment remains challenging. We believe it is more likely that non residential construction will not recover until 2012."
A depressed construction market has been a headwind for manufacturers of construction machinery and components that make up buildings' infrastructure, such as electrical, cooling and security systems.
Most diversified industrial companies get at least some revenue from the non residential construction sector, which includes office buildings, retail and warehouse space, and institutional buildings such as schools and hospitals.
Companies exposed to the sector include Honeywell International Inc, Tyco International Limited, Ingersoll Rand, Johnson Controls, Eaton Corporation, Caterpillar Inc, Deere & Co and Terex Corporation.
European companies such as Siemens AG, Schneider Electric SA and lock maker Assa Abloy are also big players in the sector.
(Sourced from www.reuters.com)
