ABI August 2017: Firms across the country see billings growth
More than one-third of firms report an increase in change orders in the last five years
Architecture firm billings increased for the seventh consecutive month in August, with the Architecture Billings Index (ABI) score rising to 53.7, as more firms reported improving business conditions in August than in July. Inquiries into new projects remained strong as well, and firms continued to report an increase in the value of new design contracts.
Billings also remained strong at firms across the country, with firms in all four regions seeing growth for the third month in a row. Since this survey covered August billings, it was too early to see an impact from Hurricanes Harvey and Irma; these disasters may potentially affect billings in the south over the next few months. Otherwise, firms of all specializations reported improving business conditions this month, continuing the strong growth trend that has been seen all year.
Employment growth was somewhat down in August, with nonfarm payroll employment increasing by 156,000 jobs, down from the average monthly increase of 176,000 for the rest of the year. However, construction payrolls added 28,000 jobs, and architectural services employment rose to 191,800 in July (the most recent data available). Architectural services employment has added 10,000 positions in the last year, and has now recovered to 88 percent of the pre-recession peak of 217,800 in 2008.
The latest edition of the Federal Reserve’s Beige Book report, released on September 6, shows that economic activity continued to expand modestly across the country in July and August. Both consumer and capital spending increased in most areas during that period, as did residential and commercial construction activity. Construction activity increased slightly in the Chicago, Minneapolis, and Philadelphia districts, while the residential real estate market slowed modestly in the Boston and Minneapolis districts, due to a low inventory of available homes for sale.
Change orders and impact on projects
This month’s special practice questions asked responding architecture firms about their recent experiences with change orders and the impact that they typically have on projects. The majority of firms (54 percent) reported that the frequency or scope of change orders has not changed over the last five years, while slightly more than one third of firms (37 percent) indicated that they have increased in that period. Larger firms were much more likely than small firms to report that they have increased, as reported by 48 percent of firms with annual billings of $5 million or more, in contrast to 28 percent of firms with annual billings of less than $250,000.
When asked about the relative magnitude of the impact of change orders on different project types, the majority of responding architecture firms indicated that the impact was average or low, regardless of project type. The top three sectors with the largest share of firms reporting a relatively high impact were education K-12 (22 percent of respondents), healthcare/hospital (21 percent), and multifamily residential rental units (21 percent).
However, architecture firms are generally concerned about change orders; nearly two thirds of respondents (64 percent) indicated that they consider change orders to be at least a somewhat serious issue, with 13 percent saying that they consider them to be a very serious issue. Firms with an institutional specialization were more likely to consider change orders to be a serious issue than those with commercial /industrial or residential specializations.
This month, Work-on-the-Boards participants are saying:
- “We are swamped with work and with inquiries. If inquiries don’t resolve into a job quickly, we have others waiting for us.” —6-person firm in the Northeast, institutional specialization
- “The Bay Area economy is still strong, but it is hampered by the high cost of living and a housing shortage.” —3-person firm in the West, mixed specialization
- “Booming; the biggest problem is the labor shortage, especially with skilled labor like masons and carpenters.” —1-person firm in the South, commercial/industrial specialization
- “Business conditions remain fairly strong, although we see some firms in retail and housing starting to lay off staff in our area. We hope this is not indicative of tougher times to come.” —34-person firm in the Midwest, institutional specialization