Demand for new building dips in discouraging sign for construction industry, economy

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Bids for new construction projects seem to be slumping as economy still struggles, leaving workers with little to do.

A leading indicator of U.S. construction activity fell below 50 in October as credit for building projects continues to be tight, suggesting a recovery in the non-residential sector will not begin until late next year at the earliest.

The Architecture Billings Index was down almost 2 points to 48.7 last month, according to the American Institute of Architects (AIA), an industry trade group. A separate index of project inquiries dipped to 61.7 from September's three-year high of 62.3.

Any number below 50 indicates contracting demand. Project inquiries tend to be higher than billings as multiple architecture firms compete for business.

"Reluctance from lending institutions to provide credit for construction projects and a sluggish economy are the main impediments to a revival of the design and construction industry," AIA Chief Economist Kermit Baker said.

The billings index had topped 50 in September, its first positive reading since January 2008, raising hopes for a turning point after a prolonged construction downturn.

Companies that sell into the sector have cited the index as evidence of a nascent recovery. They included Ingersoll-Rand Plc and Eaton Corp, whose CEO said last month the nonresidential sector was bottoming.

Most diversified industrial companies get at least some revenue from nonresidential construction, selling machinery used for erecting buildings, or components such as elevators or electrical and cooling systems.

A partial list includes Honeywell International Inc, Tyco International Ltd, Johnson Controls Inc, Caterpillar Inc, Deere & Co and Terex Corp. European companies, like lock maker Assa Abloy also participate in the sector.

The index is widely seen as a leading indicator of activity about nine to 12 months in the future.

Its move back below 50 "suggests that the recovery will be slow and will likely exhibit volatility, and we do not expect non-residential construction to begin to recover until the end of 2011 at the earliest," J.P. Morgan analyst Ann Duignan said in a research note.

Duignan also listed CNH, Manitowoc, Oshkosh and Terex as having direct exposure to non-residential construction.