Architecture, engineering, and construction still going strong in the United States

After reaching near-record levels in the first three quarters of 2007, and averting most of the negative sentiment that plagued the broader economy, market values of architecture, engineering, construction, and environmental consulting firms (AEC/E) finally slowed to a 5% pace at year-end, according to analysts at Natick, Mass.-based ZweigWhite.

The ZweigWhite 15 (ZW15), a market-weighted index designed to track the performance of publicly traded AEC/E firms in the United States, ticked up 55 points in the fourth quarter to close at $1,309.61 for the year.

“Unfortunately, the overall economy did not fare as well over the same period and it appears as if it will head lower in 2008. Skepticism has been making its way into financial headlines with news of falling housing prices, tightening credit, record-breaking oil and commodity prices, and a sluggish holiday spending season,” said Michael S. O'Brien, a principal with ZweigWhite who specializes in financial advisory services. The Standard & Poor's (S&P) 500 Index closed down 3% in the fourth quarter, reflecting investors' fears of recession.

Despite collateralized debt obligations and the subprime mess having also shaken financial institutions abroad, foreign stocks showed resiliency. The S&P 700 Index, a measure of the international economy (not including the effect of American firms), advanced slightly last quarter—favorable in comparison to the decline experienced by the S&P 500.

Jacobs Engineering Group, Pasadena, Calif., led the ZW15 and represented the AEC/E industry among the best performing stocks of the year. Jacobs exceeded analysts' estimates with a 42.9% year-over-year revenue growth primarily due to its continued success in the oil service sector, which has been driven by high oil prices. Jacobs' success translated into a soaring stock price, sending the company to the year's 10 best performers within the S&P 500 Index. Other positive contributors to the ZW15 included Hill International, Marlton, N.J.; Stantec, Edmonton, Alberta; and The Shaw Group, Baton Rouge, La.

But even the AEC/E industry was not left unscathed from the volatility that occurred in other areas of the market. Despite strong earnings reports, some AEC/E firms disappointed Wall Street with unsatisfactory future outlooks.

Even with these declines in the short run, the ZW15 ended nearly 31% above the level at which it was introduced in June 2007 at $1,000. Since its inception, performance of the ZW15 has far surpassed the U.S. economy as measured by the S&P 500.