FOMC Leans Toward Rate Hike; Architects Still Busy
- Nov 19, 2015
There were two indicators of economic strength released on Wednesday, one reflecting the overall resiliency of the U.S. economy, the other pointing to a strong commercial real estate market. The Federal Open Market Committee released the minutes of its Oct. 27-28 meeting, which noted that “most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting.” That is, conditions for an uptick in interest rates in December looks all the more likely now.
In fact, the FOMC even said that refraining from raising interest rates at this point in the game might do more harm than going ahead with the move. “It was also noted that a decision to defer policy firming could be interpreted as signaling lack of confidence in the strength of the U.S. economy or erode the Committee’s credibility,” the notes posited. “Some participants emphasized that progress toward the Committee’s objectives should be assessed in light of the cumulative gains made to date without placing excessive weight on month-to-month changes in incoming data.” In others, it would be hard for the Fed to back out now, even there’s an economic blip in the next few weeks. Capital’s going to be a little more expensive in the new year.
Also on Wednesday, the American Institute of Architects reported strong levels of demand for design services for nearly all construction project types for the majority of the year, as reflected it its Architecture Billings Index. As a leading economic indicator of construction activity, the index describes a nine- to 12-month lead time between architecture billings and construction spending. The index came in at 53.1 in October, down slightly from 53.7 in the previous month, but still reflecting an increase in design service billings (any score above 50 indicates an increase). The new projects inquiry index was 58.5, down from a reading of 61.0 the previous month, but still quite healthy.
To calculate the index, the AIA sends a monthly “work-on-the-boards” survey to member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month just ended as compared to the prior month. “Allowing for the possibility of occasional and minor backsliding, we expect healthy business conditions for the design and construction industry to persist moving into next year,” said AIA Chief Economist Kermit Baker. “One area of note is that the multifamily project sector has come around the last two months after trending down for the better part of the year.”