Practicing ArchitecturePracticing Architecture
Design Billings Inch Into Recovery Mode
Architecture firms report first monthly increase in design activity since early 2008
By Kermit Baker, PhD, Hon. AIA
AIA Chief Economist
After the most severe downturn in construction-related design activity in several generations, architecture firms may finally be heading for a recovery. The AIA Architecture Billings Index (ABI) registered a score of 50.4 for September. Any score above 50 signifies growth at U.S. architecture firms, and the September score is the first reading above 50 since January 2008.
One monthly score above the 50 level does not ensure that there will not be further slippage in the months ahead. However, there were several positive elements in the September report. First, architecture firms with a commercial and industrial specialization posted a billings index of 56.3. This is not only the strongest reading for this specialty since the summer of 2007, but also the fifth straight month that commercial and industrial firms have reported increases in billings.
Additionally, firms in two of the four major regions of the country reported growth for September. In the Northeast, the billings score was 56.7–firmly on the growth side of the ledger. Firms in the Midwest showed more modest growth with a score of 51.0, the second straight month that billings have grown in that region.
Assuming the ABI scores do not significantly fall back in the coming months, a recovery in design billings signifies an impending recovery in construction activity. AIA research on the historical performance of this index indicates that the ABI leads nonresidential construction spending on average by about nine to 12 months, so there might be a construction recovery in the latter part of 2011, with an upturn in construction starts later this year.
The broader economy has moved into a slower growth phase since this past spring. The economy grew just 1.7 percent in the second quarter, and payrolls at U.S. businesses have declined every month since April. September brought an additional 95,000 payroll losses, though some were still related to the downsizing of U.S. Census Bureau workers hired on a temporary basis for the 2010 decennial census.
Construction payrolls also declined in September, losing another 21,000 positions and bringing total construction losses to 92,000 for the first nine months of the year. Payrolls at architecture firms dropped a bit in August, the most recent month available, but still are up from their current low in March of this year.
Difficulties in the labor market have made consumers more cautious. Consumer sentiment readings have been flat for the past several months according to the University of Michigan’s consumer sentiment index, but down from levels at the beginning of the year. Business confidence has not fared much better. After posting reasonably strong scores during the second half of last year and the first half of this year, CEO business confidence dropped 12 points in the third quarter according to the Conference Board (from 62 to 50, where scores above 50 are considered positive).
With the design professions at or near a turning point for this cycle, architecture firms participating in the AIA’s Work-on-the-Boards panel were asked to name the measures that they find the most useful in predicting future workloads at their firm. While inquiries from existing or new clients were generally rated as very useful, as were formal RFPs or invitations to interview, in this uncertain economic environment many firms are looking for something even more concrete to predict future workloads, like signed design contracts. When asked to indicate a range of usefulness in predicting future workloads, almost nine in ten respondents found signed design contracts to be a “very useful” measure in predicting future workloads, compared to 82 percent rating inquiries from past or current clients as “very useful,” 56 percent for inquiries from potential new clients, and 50 percent for formal RFPs or invitations to interview.
When asked to indicate their most useful predictor of future work, over half (57 percent) of respondents rated signed contracts as their top measure, compared to 29 percent for inquiries from previous or current clients, and 6 percent for formal RFPs or invitations to interview. No other measure was selected as the best indicator for predicting future workloads by more than 4 percent of respondents.
To help AIA members weather the economy, AIA.org features a Navigating the Economy page.
Let your voice be heard! As an AIA member and firm leader you are invited to join the ABI survey panel.
This month, Work-on-the-Boards participants are saying:
• People are still hesitant to invest in renovating or adding on to their homes. It appears the hesitation stems from the question of return on investment as home values remain low.
—1-person firm in the Northeast, residential specialization
• Next year looks thin in terms of project potential. 25% of the work on our boards right now is long-range planning work for projects that are 2-5 years out.
—32-person firm in the West, institutional specialization
• We are now working overtime and hiring people. The industrial market is active right now. Stimulus funds have made it possible for us to retain personnel this year, while we awaited the resurgence of the industrial market.
—17-person firm in the South, commercial/industrial specialization
• Backlog has remained generally steady for the last 17 months, but about 75% of the amount at the end of 2008. Fourth quarter workload expectations are continued strength for October and then some weakness in November and December from current levels.
—274-person firm in the Midwest, institutional specialization