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Billings and Inquiries Strongest Since Early 2008

Broad-based recovery in design activity appears to have survived federal budget uncertainties

By Kermit Baker, Hon. AIA
AIA Chief Economist

This year’s strong pace in design activity continued enthusiastically into February, pointing to an oncoming jump in nonresidential construction spending during the second half of this year. The AIA Architectural Billings Index (ABI) was 54.9 for February, signifying the strongest growth in billings at architecture firms since the downturn began in early 2008. The inquiries index was at 64.8 for the month, again the strongest reading since the design recession began.

Underscoring the growing strength across the profession are the regional billings scores from last month. Firms in each of the four major U.S. Census regions recorded scores in excess of 52 in February, with a high of 56.7 for the Northeast. For each of the past five months, scores in all regions have been above 50, indicating a broad-based recovery in design activity that appears to have survived the recent uncertainty surrounding the federal budget and debt negotiations.

Additionally, each of the major building sectors served by architecture firms saw growth in design activity in February. The reading for the residential index was 60.9, and this index has been above the critical 50 level for 10 straight months now. This residential upturn seems to be providing momentum to the nonresidential building sectors.

The commercial/industrial index reading was 53.3 in February, the third straight month that billings activity exceeded 52 for this sector. Even the institutional index was above 50 for the month, and has been above the 50 threshold for seven straight months. However, growth has been extremely weak, as readings for this sector have barely exceeded 50 over this period. Without more acceleration, institutional design activity in the days ahead may well see some monthly declines mixed in with growth.

Economy survives federal budget impasse

In spite of ongoing concerns over the “fiscal cliff,” the sequestration of federal spending, the threat of a federal government shutdown, and the prospect of federal borrowing bumping up against the debt ceiling, the broader economy continues to make slow but steady gains. Through the first two months of the year, there has been a net increase of 355,000 payroll positions, with 73,000 of those positions (more than 20 percent) added in the construction sector. Much of the construction growth has been in housing, as housing starts increased 28 percent nationally in 2012.

A significant share of the recent improvement in construction, however, is coming from the nonresidential sector. Through the first two months of the year, almost 32,000 positions have been added by residential contractors (general contractors as well as special trade contractors), while almost 28,000 have been added to nonresidential contracting firms, accounting for 38 percent of all positions added to the construction industry. Heavy and civil engineering contracting firms have added the remaining positions within the industry.

Prospects remain for continued steady growth in the wider economy, and in the construction industry for the remainder of this year. A rising stock market points to profitable U.S. businesses, which should encourage more capital spending as the year progresses. This improvement can already be seen in the payroll levels at U.S. architecture firms, which increased by about 2,000 positions last year. However, both the architecture profession and the construction industry still have a long way to go to get back to typical levels seen last decade.

Increasing stringency for building codes and regulations

In spite of a weak construction market in recent years, architects are reporting generally increased stringency in building codes and regulations. When asked if building codes and regulations in general had changed significantly in recent years, almost two-thirds of survey respondents indicated that they had become more stringent, while fewer than 2 percent indicated that they had relaxed. The remaining third felt that they hadn’t changed significantly.

The perceived increased stringency of building codes and regulations varied a lot by the type of code or regulation. For example, of the respondents that felt that codes and regulations had changed in recent years, 93 percent of firms reported that energy codes had changed substantially. Similarly, 76 percent of firms working with accessibility regulations pointed to a change. At the other extreme, few respondents pointed to significant changes in homeowners’ association standards or in historic preservation regulations. By building type, respondents felt the greatest changes were for commercial buildings and the least for industrial facilities.

Meanwhile, these perceived changes in building codes and regulations are altering project design and construction costs. Of the respondents who reported significant changes in building codes and regulations, 26 percent felt that they had increased design costs by a significant amount, and an additional 61 percent felt that they had increased design costs by a modest amount. For construction costs, 34 percent felt that changes in codes and standards had increased construction costs by a significant amount, and 58 percent felt construction costs increased by a modest amount.

This month, Work-on-the-Boards participants are saying:

    • Big-box stores and corporate chains predominate, providing little if any opportunity for local, smaller firms.

    —One-person firm in the Midwest, institutional specialization

    • The design recovery for Superstorm Sandy has had a huge impact on inquiries for new design work.

    —Three-person firm in the Northeast, residential specialization

    • The sequester has stopped a large number of new federal projects, and will have a long-ranging effect on the design industry, especially in the Washington, D.C., area.

    —20-person firm in the South, institutional specialization

    • Private developer projects that have been sitting on the shelf are finally moving forward.
    —Six-person firm in the Northeast, commercial/industrial specialization

   



   
     

Recent Related:

Architecture Firm Billings Continue Resurgence into New Year

Final ABI for 2012 Caps Strongest Year Since 2007

Business Conditions at Architecture Firms Continue to Improve

ABI Reflects Strongest Billings in Nearly Two Years

Reference:

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.

 

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