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Architecture Firm Billings Increase Modestly in February

While other sectors are stuck in stasis, housing starts are set to accelerate

By Jennifer Riskus
Manager, Economic Research

Architecture firm billings continued to increase at a modest pace in February, with an Architecture Billings Index score of 50.7 (any score over 50 indicates billings growth). Slightly more firms reported improving conditions in February than in January, but overall, billings growth remains sluggish. Inquiries into new work also increased in February, as did the value of new signed design contracts, following a minimal decline in the value of new design contracts in January.

On a regional basis, conditions remained essentially the same in February, as they have for the last four months, with architecture firms located in the Northeast and Midwest experiencing declining billings, while firms located in the South and West seeing increased billings. The pace of the decline slowed slightly in both the Northeast and Midwest last month, and there remains optimism that conditions will improve again with the arrival of spring weather.

Business conditions by firm specialization also remained about the same in February as in January, with architecture firms with a residential specialization reporting the strongest growth, followed by firms with a commercial/industrial specialization. However, while firms with an institutional specialization continued to report declining firm billings, the pace of the decline has slowed over the last two months, and it seems likely that billings will begin increasing in this sector in the near future.

More housing starts on the horizon?

The overall economy remained relatively strong in February, with nonfarm payroll employment growing by 175,000 new positions, although that is slightly below average monthly gains for the prior 12 months. Architecture services employment increased by 1,500 in January, the most recent data available. At 160,800, architecture services employment is now at its highest level in nearly four years, although it remains well below its most recent peak. While housing starts were essentially flat from January to February, building permits for privately-owned housing units increased by nearly 8 percent in that same time period, and are up by nearly 7 percent overall from February 2013, which bodes well for an increase in starts in the near future.

The Federal Reserve’s most recent edition of the Beige Book report also indicates continued economic expansion in most regions of the country from late January through February. However, it does note that severe winter weather has put a damper on conditions in some parts of the country, particularly in the Northeast. But overall, the report indicates that the outlook for residential sales and construction is positive in the Boston, Philadelphia, Cleveland, Atlanta, and San Francisco districts; while commercial real estate activity improved in the New York, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco districts.

Positive outlook for architecture compensation

Architect compensation took a major hit during the economic downturn, and has been slow to recover, with only very modest increases reported in the 2013 AIA Compensation Survey Report. This month’s special practice questions asked panelists about anticipated changes to guaranteed compensation (excluding overtime pay, bonuses, profit sharing, and/or other cash compensation) for architecture positions at their firm in 2014, and found that most firms were generally optimistic. Many firms anticipate salary increases in 2014 for positions like licensed architects (excluding principals and partners), nonregistered graduates (graduates of accredited architecture programs who are not currently on a licensure track), and interns on the path to licensure. A small share of respondents anticipates salary decreases for these positions in 2014, and the remaining share expects that salaries will remain unchanged from 2013 to 2014. The share of firms expecting salary increases for firm principals/partners was lower than for other architecture positions, but was still slightly higher than those who expect salaries for those positions to remain the same from last year.

Nearly 60 percent of panelists reported that architectural compensation remains a major issue for the profession. They believe that it is of greatest concern to more senior staff, particularly experienced architects/designers with seven to 10 years of experience, followed by managers and senior managers with 10+ years of experience, moderately experienced architects/designers with four to six years of experience, and interns. Architectural employees with an ownership stake in the firm have seen particularly weak compensation throughout the downturn, as many have denied themselves raises in order to give raises to other employees, or to reinvest money into the firm.

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

  • Things seem to be generally busy across the board. The key here will be to maintain a steady flow of activity. This market is very shallow, and trends in the general economy can really get magnified.—3-person firm in the West, commercial/industrial specialization
  • Residential design, both new construction and renovation, is definitely on the upswing.—4-person firm in the Northeast, residential specialization
  • The southeast is still lagging [behind] the rest of the country in employment growth, but business conditions are improving.— 85-person firm in the South, commercial/industrial specialization
  • Our state is a mess, but local municipalities are making it work on their own. Having a national presence is a very important part of our current financial health.—23-person firm in the Midwest, institutional specialization

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Recent Related:

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Architecture Business Conditions Still Improving; Pace of Billings Growth Moderates Slightly

 

Reference:

The ABI Work-on-the-Boards Survey 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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