ABI July 2016: Design activity remains at healthy levels
Architects concerned whether upcoming election will affect design activity over coming months
Moving into the second half of the year, and more importantly heading into an increasingly contentious presidential election season, US architecture firms continued to report solid business conditions. The AIA’s Architecture Billings Index (ABI) was 51.5 for July, down somewhat from the pace of growth of the prior two months but just above the average score over the first six months of the year. New project inquiries fell somewhat from their pace of growth in June, but remained at healthy levels. New design contracts rebounded in July after a surprising dip—the first decline in over two years—in June.
Regionally, firms in the South accounted for virtually all of the billings gains for the month; firms in the Northeast and West posted minor declines, and firms in the Midwest saw hardly any increase. By sector, residential firms continued to report strong growth in billings as commercial/industrial and institutional firms saw only modest growth during the month.
Economy continues to chug along at unremarkable pace of growth
Even though stock market indexes are at or near record levels, growth in the economy has been underwhelming in recent quarters. The Department of Commerce’s advance estimate for GDP growth for the second quarter was 1.2 percent as a seasonally adjusted and annualized rate, coming on top of 0.8 percent in the first quarter and 0.9 percent in the fourth quarter of last year. As a result of a disappointing first half, many forecasters have lowered their 2016 GDP growth projections to under 2 percent.
In an otherwise slow growing economy, housing is standing out as one sector of the economy that should see healthy growth this year. Housing starts in July totaled just over 1.2 million when seasonally adjusted and annualized, essentially equaling the best performance in this industry since 2007. However, most analysts feel that there is much more potential growth, as current rates of household formation suggest that our economy can support housing starts in the 1.6 to 1.8 million a year range. Given trends in house prices, housing demand continues to be strong. The CoreLogic home price index has grown at a 5.5 percent pace through the first half of the year, with house prices nationally back to levels not seen since 2007.
Employment levels also continue to demonstrate continued growth in our economy. Payroll employment increased by 255,000 positions in July, on top of a 292,000 increase in June. So far in 2016, there has been a net gain of 1.3 million payroll positions, putting us on pace to add over 2.2 million payroll positions this year. The national unemployment rate remained at 4.9 percent in July, putting 2016 unemployment rates at their lowest levels since 2007.
Construction employment has also benefitted from recent payroll gains. Through the first seven months of the year, 55,000 construction positions have been added on net nationally. However, payrolls will need to increase much more to accommodate the growth that we’ve seen in construction activity recently. Labor shortages in this industry still rank at or near the top of the list of industry concerns, and many contractors are increasingly suggesting that they may not be able to meet the current level of construction demand unless the construction labor pool begins to grow at a faster pace.
Election uncertainty looming in the construction outlook
The months leading up to a national presidential election often are associated with a modest slowdown in the economy. Uncertainty over future programs and policies often lead to inaction, as investors dislike uncertainty as much as anything. This election cycle seems to be generating more uncertainty than usual. Growth in our economy has been disappointing, and business investment has declined by 2 percent or more (annualized) per quarter over the past three quarters.
Architecture firms in our ABI panel also detect some nervousness among their clients, but at more modest levels. When asked if they have seen any direct impact of the presidential election on any projects at their firm, 5 percent indicated that they had. An additional 20 percent indicated that they hadn’t seen anything directly but sense that the election may have affected client plans and decisions. The remaining 75 percent responded that they have not felt any direct or indirect impact on their projects.
Respondents were also asked if they feel that the upcoming presidential election will be positive or negative for the design professions over the remainder of 2016, regardless of whether they have seen any direct or indirect effects. Fewer than 10 percent of firms feel that the impending election will be a positive for the profession during the period leading up to the election, 25 percent feel that it will be negative, and 33 percent feel that it will be mixed. The remaining third of respondents are unsure of the potential impact.
This month, Work-on-the-Boards participants are saying:
- "Stable domestically. Big slowdowns internationally due to funding concerns and civil unrest." —170-person firm in the Midwest, institutional specialization
- "Inquiries, concept studies, and other front-end work is still happening at a high and steady pace, though we are starting to see fewer proposal requests for full services." —27-person firm in the South, residential specialization
- "High construction costs are having an impact on scope and systems, but projects are finding a way to move forward." —11-person firm in the Northeast, commercial/industrial specialization
- "Booming. Shortages in skilled trades. Shortages in materials. Quality control increasingly difficult. All current clients are self-funded." —2-person firm in the South, commercial/industrial specialization
ABI July 2016