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Buildings Show Business Confidence Building

After riding high, nonresidential construction spending may hit a plateau in the months ahead but should accelerate again in 2016.

Buildings Show Business Confidence Building

Robert Johnson, CFA

Sep 14, 2015

Bob Johnson: This week's chart takes a quick look at nonresidential construction spending, an important indicator of business confidence. This index measures many types of construction--everything from shopping centers to other commercial buildings and manufacturing facilities. So, it's one of the broadest measures of business spending that we have on structures.

Right now, this index is showing 18% year-over-year growth--a pretty strong number and one of the highest numbers of this recovery. Frankly, with a relatively larger percentage of GDP than residential spending, it hasn't gotten all the attention that it deserves. And as I've said, right now, we're up about 18% year over year.

But what's going to happen in the future? We can get some important clues to that from the Architectural Billing Index. The news there is a little bit mixed. Right now, the index is close to a recovery high at 54.1, which is very good for construction spending about 11 to 12 months out from now. So, the long-term picture looks pretty good. A short-term dip in the index back to 50 early this winter probably portends a plateauing of the growth rate in the months ahead before accelerating again in 2016.

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