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Design Activity in the Third Quarter Opens with a Bang

Firms see many reasons for declining licensure rates among younger staff

By Kermit Baker, Hon. AIA
AIA Chief Economist

As of July, U.S. architecture firms have produced three straight months of accelerating gains in design billings. With a reading of 55.8 for the month (where any score above 50 signifies growth), the July reading reflects stronger gains in billings than any period since mid-2007. With solid monthly scores for new design contracts (at 54.9 this month) and new project inquiries (66.0), all signs indicate strong momentum building in design activity, which is expected to produce solids gains in construction later this year and into 2015.

Regional billings activity is also showing more consistent growth. Billings at firms in each of the major regions of the country were strong, with firms in the Northeast, Midwest, and West showing a reversal from declining billings as recently as two to three months ago. Firms in the South continue to report healthy business conditions, as they have every month for two straight years.

Another equally favorable sign is that all of the major building sectors are now reporting healthy gains in design activity. In particular, institutional firms reported healthy increases for July, with growth accelerating over June levels. Commercial/industrial firms have reported growth each month this year, while residential firms now have an almost three-year uninterrupted string of gains.

Economy coming around

After a slow start to the year, the economy is finally beginning to perk up. The preliminary estimate for economic growth in the second quarter was just under 4 percent, more than offsetting the revised estimate of a 2.1 percent decline during the first quarter. One key reason for this reversal was increased business investment—including investment in new structures—which was estimated to have grown at a 5.5 percent pace in the second quarter, up from 1.6 percent in the first quarter.

Feeling more comfortable with the economic outlook, U.S. businesses also continue to increase their payroll headcounts. Payrolls increased nationally by 209,000 in July, the sixth straight month that employment has increased by at least 200,000 positions. Construction is also benefitting from the general increase in employment, with payrolls at construction firms increasing every month this year.

The housing market continues its recovery, though the momentum has slowed from the fourth quarter of last year. Still, national housing starts totaled almost a million during the second quarter, up from 925,000 in the first quarter. One reason that the housing recovery is expected to continue at a healthy pace is that home prices are rebounding strongly, suggesting that demand is growing. For each of the past four quarters, house prices nationally have been increasing at a double-digit pace compared to year-ago figures, according to the S&P/Case-Shiller Home Price Index. A strengthening housing market has helped to boost consumer confidence levels, and also has encouraged more spending, as evidenced by the recent strong increases in national retail sales figures.

Why aren’t younger architects getting licensed?

Firm leaders are increasingly concerned that a growing share of their younger architectural staff is not pursuing licensure. While there is consensus that this is a growing problem, there is much less agreement as to the key reasons behind this trend. When questioned on this issue, a plurality of respondents identified “few perceived benefits/few incentives” to licensure as the most important reason for declining rates. However, almost as many indicated a different but closely related reason: Many younger architects don’t feel the need to pursue licensure, suggesting that it is not yet, at least, a goal on their career path. Other closely related reasons are that many younger architects are not fully committed to a career in architecture (selected by 13.3 percent of respondents), and that many have no plans to become principals or firm owners (5.6 percent), where licensure would be more essential.

Other respondents suggested that leaders in the profession share responsibility for declining licensure rates. The sense that the profession hasn’t adequately demonstrated the benefits of licensure was mentioned by almost 15 percent of respondents as the most important reason, while an additional 3 percent indicated that firm leaders haven’t sufficiently encouraged younger staff to pursue licensure. Still others point to the licensure process itself as a key reason for declining rates. Other reasons include: preparation for the ARE is too time-consuming (8.2 percent); the internship process is too difficult/ complicated (5.8 percent); the ARE and licensure are too costly (4.0 percent); many feel unprepared to take the ARE (3.0 percent).

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

  • Stalled projects are being released and existing clients are adding new work. Competition for talented staff is fierce, and pay rates are increasing as a result.
    —14-person firm in the West, commercial/industrial specialization

    • [The] election cycle has incumbents spreading new found “surpluses” to building projects. This will be a short lived bump.
    —17-person firm in the Northeast, institutional specialization

    • Residential additions and renovations overheating; new homes still dead.
    —One-person firm in the South, residential specialization

    • This year has been very strong for our firm metrics. Many clients that have been holding on to work in past years are now releasing projects.
    —45-person firm in the Midwest, commercial/industrial specialization

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The Winter Doldrums Drag On Through March at Architecture Firms

 

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.

 

Back to AIArchitect August 22, 2014

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