The US Architectural Billings Index (ABI) increased to 50.4 in January (December: 48.5) increasing above the key marker of expansion versus contraction, that is the 50 level. The ABI is a gauge of future construction activity with a lead time of 9 months is considered to be a leading indicator for the building materials and construction sectors, respectively. The January reading is an improvement on the December activity level that was the lowest since June 2012 (47.3), coming in just below the April 2013 reading of 48.6. <p>
The ABI produced readings indicating expansion for most of 2013 but the final two readings for November and December indicate that there has been a reversal in the improvement seen for non-residential construction activity, despite what was a tepid recovery to begin with. The movement above 50 in January will need to be maintained in order to solidify any improvement in the non-residential construction segment. <p>
The new projects Inquiry index registered a decrease to 58.5 from 59.0 and this would still be considered to be a healthy reading. <p>
The ABI index typically has a 9 month lag between turning positive and seeing construction spending increase. However, in the current economic cycle, despite turning positive above 50 back in August 2012 (50.5), the level of non-residential construction growth in the US remains muted with activity levels continuing to come under pressure in several areas. <p>
For the US, we continue to expect residential construction to lead the way in terms of recovery while the outlooks for non-residential construction and infrastructure project is less positive as both markets struggle to generate growth. Against this backdrop, our continued preference is for light side construction companies that are exposed to the US residential construction recovery, particularly on the RMI side as opposed to new build.
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