* Project inquiries index rises to 58.1
* Institutional sector weakest amid tight govt. budgets
* Analyst: Construction recovery in 2012 or later (Adds analyst comment)
NEW YORK, July 20 (Reuters) – A leading indicator of U.S. non-residential construction activity fell for the third consecutive month in June, suggesting an anticipated construction recovery was still several months away.
The Architecture Billings Index fell 0.9 point to 46.3 points in June, according the American Institute of Architects (AIA). Any reading below 50 indicates contraction in demand for architects’ services, whose revenue predicts construction activity nine to 12 months in the future.
A separate index of project inquiries rose, however, to 58.1 from 52.6 in May. This measure is typically higher as multiple architecture firms compete for the same work.
“While a modest turnaround appeared to be on the way earlier in the year, the overall concern about both domestic and global economies is seeping into design and construction industry and adding yet another element that is preventing recovery,” AIA chief economist Kermit Baker said.
Demand is weakest in the institutional sector that includes government buildings, reflecting depressed government budgets, according to the monthly survey of architecture firms.
“The threat of the federal government failing to resolve the debt ceiling issue is leading to higher borrowing rates for real estate projects,” Baker said. “Should there actually be a default, we are likely looking at a catastrophic situation for a sector that accounts for more than 10 percent of overall GDP.”
Commercial property values fell to new lows in April and office vacancy rates are well above pre-recession lows, JPMorgan analyst Ann Duignan said in a note to clients.
“The recovery has yet to find solid ground and that the non-residential construction environment remains challenging,” she said. “We believe it is more likely that non-residential construction will not recover until 2012+.”
A depressed construction market has been a headwind for manufacturers of construction machinery and components that make up buildings’ infrastructure, such as electrical, cooling and security systems.
Most diversified industrial companies get at least some revenue from the non-residential construction sector, which includes office buildings, retail and warehouse space, and institutional buildings such as schools and hospitals.
Companies exposed to the sector include Honeywell International Inc (HON.N), Tyco International Ltd (TYC.N), Ingersoll Rand (IR.N), Johnson Controls (JCI.N), Eaton Corp (ETN.N), Caterpillar Inc (CAT.N), Deere & Co (DE.N) and Terex Corp (TEX.N).
European companies such as Siemens AG (SIEGn.DE), Schneider Electric SA (SCHN.PA) and lock maker Assa Abloy (ASSAb.ST) are also big players in the sector. (Reporting by Nick Zieminski, editing by Maureen Bavdek and Derek Caney)