U.S. architects hopeful about stimulus-led recovery

NEW YORK (Reuters) - U.S. architects, whose design billings act as a leading indicator of construction activity, are buzzing about stimulus money flowing into their industry but it is too soon to call a construction recovery, the chief economist of an architects' trade group said on Thursday.

A national recovery in non-residential construction -- which includes schools, hospitals, office buildings and retail space -- probably will not get under way until 2011, said Kermit Baker, chief economist of the American Institute of Architects (AIA).

Some obstacles include tight credit, an uncertain outlook for the U.S. economy, which faces soaring deficits, and the prospect of a return of inflation.

Architects are seeing more stimulus-driven inquiries for projects but whether that translates into billings remains in doubt, Baker told the Reuters Infrastructure Summit in Washington.

"Folks who never worked on federal projects in their life are hoping they can get a piece of the action," Baker said. "(The stimulus) has created a bit of buzz in the profession. It's not going to turn things around but it's going to help."

The AIA publishes a closely-watched monthly index of billing activity, which jumped in March after reaching its lowest levels on record between October and February. The index forecasts construction activity nine to 12 months ahead, but its recent uptick marks a slower rate of decline rather than evidence of an upturn in demand.

"It's not signaling a recovery in the market, but some indication the inflection point is getting closer," Baker said.

The index, where a reading above 50 marks expansion, now stands at 43.7 and is likely to mostly remain below 50 for the next six to nine months, Baker predicted.

Some encouraging signs for construction include evidence that project cancellations have stopped, and costs of materials like steel, copper and lumber, are lower, as are labor costs. As a result, some construction projects are coming in 10 to 15 percent below budget, Baker said.

Still, credit constraints remain "very serious," and relatively few stimulus funds are committed to building construction, which focuses more on streets and highways, and water and sewer projects. Even funding for schools is aimed more at preventing teacher layoffs than new construction or building retrofits, he said.

Baker, a senior research fellow at Harvard University's Joint Center for Housing Studies, said it was hard to imagine a broad economic recovery without the U.S. residential market coming back first.

That sector suffered for the past three years from massive overbuilding but it is now moving into a phase where pent-up demand will become a factor.

"When this market recovers, you will see pretty strong demand from first-time (homebuyers) that have ignored this market for several years now," Baker said.

(Editing Bernard Orr)