By Alex Frangos
Architects could prove useful in forecasting the economy.
At least that's what research from the American Institute of Architects indicates. The Washington, D.C. trade group says it has found that data on billings at architecture firms -- which the AIA has collected monthly for the past seven years -- is a strong predictor of future construction activity.
"Architects see this activity several months before it shows up in bricks and mortar," says Kermit Baker, AIA's chief economist.
The AIA compared figures from its Work on the Boards survey to the Commerce Department's official construction spending figures, which measure money actually spent erecting buildings. What it found is a four- to eight-month lag in the peaks and valleys of the two data sets.
Construction, both commercial and residential, is a nearly-$1-trillion-a-year industry, according to the Commerce Department. It's a major component of gross domestic product -- 8.2% of GDP in 2003 -- and a jobs generator. The most common measures economists use to forecast construction activity are building permits and interest rates, which some say don't show a full enough picture of what's going to happen.
Outside experts see potential in the numbers. Stuart Gabriel, director of the University of Southern California's Lusk Center for Real Estatecolor> and a former Federal Reserve economist, says the data could be useful to GDP forecasters.
Thomas Lys, a professor of real-estate management at Northwestern University's Kellogg School of Management in Evanston, Ill., says it makes sense that the data indicate construction coming down the pike. "When people want to build," he says, "first they hire an architect." His one complaint is that the research doesn't look far enough into the future. "Four to eight months is nice, but you want to know what's going on next year."
There are weaknesses to the data, though. Because the survey sample size is relatively small, fluctuations in the results can be exaggerated. To remedy that, the AIA plans on doubling the sample size to 600 firms. The larger sample would make it possible to forecast construction spending based on a region or sector. The group also is looking for a partner organization to help market the survey outside of the clubby world of architecture.
The latest forecast? According to February's survey published Friday, the downturn in construction should hit bottom in April. Around six months later: "a rocketing through the gates," says Mr. Baker.