Practicing ArchitecturePracticing Architecture
Architecture Firm Billing Losses Moderate, but Continue in July
Commercial and institutional renovations are currently the strongest construction sectors
By Jennifer Riskus
Architecture firm billings declined for the fourth consecutive month in July, although the pace of decline slowed slightly from the drop seen in June. The AIA’s Architecture Billings Index (ABI) score for the month rose to 48.7, indicating that fewer firms reported softening business conditions last month than during the previous month. Inquiries into new projects remained steady, although firms reported that the value of new design contracts continued to decline modestly.
Firms located in the South reported an uptick in their firm billings in July, although business conditions continued to soften in the other three regions of the country. Firms located in the Northeast region reported particularly weak business conditions.
Architecture firms with a residential specialization also reported a slight increase in billings in July after seeing declines for the three prior months. Throughout the economy’s nascent recovery, firms with a residential specialization have reported more months with billings growth than firms with other specializations, as residential projects continue to rebound from the downturn in many parts of the country. On the other hand, firms with a commercial/industrial new construction specialization reported their steepest monthly decline in more than two years.
There was some improvement in the general economy in July, as non-farm payroll employment increased by 163,000, the largest monthly gain since February. Although construction employment has remained relatively flat for the last several months, architecture services employment added an additional 1,800 positions in June (the most recent data available). This brings employment at architecture firms to 157,900, the highest it has been in nearly two years. In addition, the Conference Board Consumer Confidence Index increased in July by more than three points, to 65.9 (1985=100). Although this score is still fairly weak, it is rising slowly and being led by improved consumer expectations for the next six months. However, the estimate of the U.S. GDP for the second quarter of the year shows a slowing pace of economic growth, with an annual increase of only 1.5 percent, down from 2.0 percent in the first quarter of the year. Given that other economic indicators suggested that the second quarter would be relatively weak, this reading was not a surprise. Rising consumer confidence and consumer spending suggest a stronger growth rate in the third quarter.
Rehabilitations and retrofits
Although overall business conditions remain disappointing for many firms, certain construction sectors appear relatively strong. This month, survey panelists selected the top three construction sectors (of those that their firms serve) that they perceive to be the strongest at present. Nearly six in 10 firms named commercial/industrial rehabilitations and retrofits are the strongest sector, followed by 48 percent who selected institutional rehabilitations and retrofits, and 39 percent who indicated new office construction.
Firms located in the West, where the residential market has been particularly hard hit, were most likely to designate commercial/industrial renovations as the strongest sector, while firms in the Northeast favored the institutional renovation sector. Large firms, with annual billings of $5 million or more, were far more likely than smaller firms to describe new office construction as being the strongest construction sector that their firm works in.
This month, Work-on the-Boards participants are saying:
• Business conditions are robust. [We’re] finally seeing new construction projects. [Hotels] nationwide are taking off and receiving financing.
—18-person firm in the West, commercial/industrial specialization
• [We’re] very concerned about future projects due to the drought in our area. The fear is that construction will stall and clients will not move ahead with planned projects this year.
—10-person firm in the Midwest, institutional specialization
• I perceive a very strong pent-up demand, but so far the election year and the euro crisis are making our clientele very conservative about new investment.
—Four-person firm in the Northeast, residential specialization
• Atlanta has not picked up much momentum other than rental units. Now, with the failure of the Atlanta region transportation plan (T-SPLOST) vote, we see a long road ahead for new private development in this city.
The ABI Work-on-the-Boards panel is open to any AIA member who is principal/partner of their firm. Apply to join the ABI panel by completing a brief background information form on your firm here.
About the AIA Architecture Billings Index
The Architecture Billings Index (ABI), produced by the AIA Economics and Market Research Group, is a leading economic indicator that provides an approximately nine- to 12-month glimpse into the future of nonresidential construction spending activity. The diffusion indexes contained in the full report are derived from a monthly “Work-on-the-Boards” survey that is sent to a panel of AIA member–owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended, as compared to the prior month, and the results are then compiled into the ABI. These monthly results are also seasonally adjusted to allow for comparison to prior months. The monthly ABI index scores are centered near 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline. The regional and sector data are formulated using a three-month moving average. More information on the ABI and the analysis of its relationship to construction activity can be found in the white paper “Architecture Billings as a Leading Indicator of Construction: Analysis of the Relationship between a Billings Index and Construction Spending” on AIA.org.