Practicing ArchitecturePracticing Architecture
Architecture Business Conditions Still Improving;
Manager, Economic Research
While business conditions improved at architecture firms for the sixth consecutive month, and the 14th month out of the last 15, the pace of billings growth slowed slightly in October, as the ABI score declined modestly to 51.6. (Any score above 50 indicates billings growth.) This score reflects a more moderate pace of growth than in September and may partially be due to the impact of the 16-day government shutdown during the first half of the month. However, future workloads continue to look promising, as both inquiries into new projects and the value of new signed design contracts increased in from September to October.
Across the country, firm billings increased in all regions except the Northeast, where a very modest decline was reported. Business conditions have been improving in the Sunbelt region of the country in recent months, while firms located in the Midwest have seen more moderate increases in billings. By practice sector, both firms with a residential specialization and those with a commercial/industrial specialization have seen positive conditions recently, which extended into October. Firms with an institutional specialization continue to experience the same essentially flat conditions, with a very modest monthly increase in billings, as they have for the last 15 months.
Despite the government shutdown during the first half of October, the general economy remained relatively positive. Total nonfarm payroll employment increased by 204,000 positions for the month, surpassing expectations. Many major industries reported gains in October, including the manufacturing sector. Architectural services employment was essentially flat in September (the most recent data available), but continues a slow, but steady, rebound from the most recent low point in August 2011. Advance data shows that the U.S. GDP increased at an annual rate of 2.8 percent in the third quarter of 2013, on the heels of a 2.5 percent increase in the second quarter. The third quarter gains were led by increased personal consumption expenditures, investments, exports, and state/local government spending, which helped offset a decrease in federal government spending.
This month’s special practice question asked ABI panelists to think about the timing of billings during the design phase of a project. (This is defined as running from the design contract award through the bidding and construction award). The AIA provided panelists with an arbitrary design phase duration for three typical project types (six months for a single-family residential project, nine months for a commercial/industrial project, and 12 months for an institutional project). Participants were then asked to allocate the design billings for a representative project by month. Responding firms reported that on average, nearly half of the project’s design billings occur during the first half of the design phase, while another 40 percent occur during the second half of the design phase. The remaining share of billings occur during post-design work, such as construction administration.
These ratios of billing times were relatively consistent across the three project types, although responding firms reported that a slightly greater share of project billings occur during post-design work for institutional projects (17 percent, on average), compared to 14 percent for commercial/industrial projects, and 13 percent for residential projects. And larger firms reported that the share of billings occurring during post-design work is typically greater than the share during the same period at smaller firms.
This month, Work-On-The-Boards participants are saying:
• We are seeing construction cost increases due to a consistent shortage of qualified sub-contractors for key trades.
—14-person firm in the Northeast, commercial/industrial specialization
• Private sector work continues cautiously forward. Public sector work is picking up. Federal projects that were stalled in procurement have resumed now that the budget/debt ceiling battle is resolved.
—29-person firm in the South, institutional specialization
• Residential work has stayed at a consistent new normal; slow and steady but no true stability. Apartment work has pretty much stopped.
—6-person firm in the West, residential specialization
• Many new projects in design phase but they are taking longer to get approvals and move forward.
—7-person firm in the Midwest, commercial/industrial specialization
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.