April 23, 2008 / 4:03 AM / in 10 years

Non-residential construction outlook weakens: AIA

NEW YORK (Reuters) - A forward-looking index of U.S. nonresidential construction activity fell to a record low in March, reflecting the impact of the credit crunch on the broader economy, an architects’ group said on Wednesday.

The Architecture Billings Index fell two points to 39.7 last month, the lowest since the survey began in 1995, the American Institute of Architects said.

The March decline follows a nine-point drop the previous month, and suggests weaker nonresidential construction activity about nine to 12 months in the future, the AIA said. A reading below 50 indicates contraction.

“Activity at architecture firms is coming to a screeching halt,” said the group’s chief economist, Kermit Baker. The credit crunch has “sloshed over” into a broader downturn in the economy, he added.

“Why put up new retail space if consumer spending is declining? Independent of whether or not you get financing for these projects, some of them just don’t make sense in this environment.”

All U.S. regions showed weakness in March, with the South slightly less hard-hit than other parts of the country, partly reflecting the strength of the energy sector in Texas.

Still, the downturn is likely to be less steep than the last one -- in 2001 and 2002 -- because this time the construction upswing created less excess inventory, Baker said. The drop in billings reflects caution among architecture firms’ clients, and the downturn’s length will depend on how the broader economy performs.

    “Developers and property owners that have projects in the design queue say, ‘the economy’s turned and we want to hold off on these projects until it recovers,”’ Baker said.

    Nonresidential building has held up relatively well over the past two years, even as the U.S. housing market has slumped. But some companies that sell into the nonresidential construction market, including diversified manufacturer Honeywell International Inc (HON.N). (HON.N), have started to forecast a downturn.

    Other companies that generate revenue from nonresidential construction include Cooper Industries Ltd CBE.N, which makes electrical products and tools, lighting maker Acuity Brands Inc (AYI.N), electrical components maker Thomas & Betts Corp. TNB.N, and Johnson Controls Inc (JCI.N), which provides heating, ventilation and cooling systems.

    Reporting by Nick Zieminski; Editing by Steve Orlofsky

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