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Economic Indicators And What You Can Do To Prepare Your Company

Posted on Saturday, June 27th, 2020 at 6:09 pm    

There is reason to be cautiously optimistic this month. As the economy has slowly started to open up consumer spending has increased. The Wall Street Journal (WSJ) reports today that Americans spending increased by 8.2% in May from a month earlier. “Household spending on long-lasting items like cars, refrigerators, and sofas drove the growth.”

In a separate article in the WSJ, they reported the Federal Reserve found the 33 largest US banks are currently “strong enough to withstand the crisis” but did take the extraordinary step of restricting the size of the dividends and stock repurchases in order to further strengthen their balance sheets. This is a good sign that the financial system will not break down as it did 12 years ago. “The Fed said limiting shareholder payouts would help keep banks healthy during the recession. Its analysis of the current pandemic found that if the economy takes a long time to recover, banks could experience losses similar to the financial crisis of 2008.”

The concern is still the job market. Initial jobless claims decreased slightly this week but it’s still a staggering 1.5 million new claims while the total receiving benefits are 19.5 million. It will be hard for GDP to recover until new hires outpace layoffs. This will be tough to do when states such as Texas reopened most of the economy have had to announce plans to roll back some openings due to a spike in COVID cases. (More on this can be found in this WSJ article.) The fact is that getting the economy opened is going to be hard until we reach herd immunity either through vaccines or natural infection recoveries (Mayo Clinic).

On the positive side, projects that were stalled or delayed are now breaking ground. A good leading indicator of project starts is the Dodge Momentum Index. While it was flat in May, the good news is that it has stopped falling like a rock.

While these economic indicators are important, I believe the most important economic gauge to track is the AIA Billing Index (ABI). Architect and design team inquiries and billings are the leading indicators for construction starts. The ABI has been down for down significantly for 3 months now. That drop off indicates there will be a future drop off in project starts this fall. There is typically a 5-7 month timing delay between a change in the ABI and construction project starts. Construction starts will most likely be depressed for each month that the ABI is depressed.

“Business conditions at architecture firms remained extremely poor for the third consecutive month in May. While the ABI score of 32.0 for the month was somewhat higher than the April score, it still indicates that the majority of firms saw their billings decrease yet again (any score below 50 indicates declining billings). Indicators of future work remained grim as well, and while a larger share of firms reported an increase in inquiries into new projects in May than in April, most firms still saw a decline. In addition, the value of newly signed design contracts remained at a near record-low level, as firms indicated that clients are still extremely hesitant to sign on the dotted line for new work at this time.”

The entire report is short and I encourage everyone to read it. It will be interesting to see what the potential long-term changes in buildings and their design will be in response to future virus threats.