ABI December 2017: Firm billings end the year on a strong note
Increasing firm profitability remain top business-related concern for the coming year
The year 2017 ended with architecture firms continuing to report strong firm billings. An Architecture Billings Index (ABI) score of 52.9 for December meant that, for 10 of the year's 12 months, architecture firms saw increases in billings (any score over 50 indicates billings growth). Firms also continued to report strong backlogs of about six months in December—as they had throughout the year—and inquiries into new projects and the value of newly signed design contracts also remained robust, serving as additional indicators of plenty of work remaining in the pipeline for the coming months.
Firms located in the South continued to report billings growth every month of the year in 2017, the fifth year in a row without any decline in billings for the region. Firms located in the West saw business conditions continue to improve in December, after starting the year with some soft conditions and following a modest slowdown in August. Firms located in the Midwest saw billings growth every month of the year except September, and growth remained strong through the end of the year. Firms located in the Northeast were the only ones to end the year with a modest decrease in billings, and generally saw softer conditions throughout 2017 than those in other areas.
Firms of all specializations ended the year on a strong note, particularly those with residential and commercial/industrial specializations. These firms also averaged the highest scores throughout 2017, although firms with an institutional specialization also reported billings growth every month of the year.
Economy strong going into the new year
The overall national economy ended the year on a strong note as well, with nonfarm payroll employment increasing by 148,000 new positions in December and finishing the year with a total of 2.1 million positions added, just shy of the 2.2 million added in 2016. Construction employment remained robust, with 30,000 new positions added in December, for a total of 210,000 in 2017. And architectural services employment added 1,200 new positions in November (the most recent data available), climbing to a total of 192,400, the highest level since February 2009. Architectural services employment added a total of 7,400 positions for the year through November, already surpassing the 6,000 that were added in 2016.
The latest edition of the Federal Reserve’s Beige Book report—released on January 17 and covering business conditions in the last six weeks of 2017—showed broad expansion across all twelve of the Federal Reserve districts, with the Dallas district showing particularly robust growth. While residential real estate was reported as generally constrained across the country, partially due to limited inventory for home sales, the residential real estate market was robust in the San Francisco district, and residential sales were reported to be up in the Minneapolis district. On the nonresidential side, commercial real estate activity increased in the Richmond and Atlanta districts, while commercial construction increased in the Minneapolis district.
Top business concerns for 2018
For the second year in a row, increasing firm profitability remained at the top of the list of business-related concerns for the coming year as reported by responding architecture firm leaders, with just under one-third selecting it as one of their top three concerns. However, concerns about firm staffing were cited more frequently this year than last year as one of the top three concerns—by 28 percent of respondents—as firms have reported throughout 2017 that they are having increasing difficulty finding qualified staff to fill vacant positions.
Competition from other architecture firms or design professionals was the third most frequently cited concern for the coming year, while last year it was not among the top-five concerns. Managing the rising costs of running a firm and identifying new clients and markets round out the top-five concerns for 2018, although fewer firms are concerned about those issues for the coming year than they were for 2017. Firms are also generally less concerned about coping with an unpredictable economy than they have been in recent years, with just 15 percent citing it as one of their top-three concerns for 2018.
This month, Work-on-the-Boards participants are saying:
- “Business conditions have improved dramatically this year and are the best we have seen since 2002-2006.” —10-person firm in the Northeast, commercial/industrial specialization
- “Our region is very busy, the greatest concerns are around the rising construction costs from sub trades and getting qualified staff to do the work. This is leading to a slower execution rate, as some project ROI is not able to be met with the increased construction costs.” —140-person firm in the West, institutional specialization
- “Very mixed. Some firms are recovered from the last few years of low energy prices affecting work in Houston, while many firms are still much smaller than in prior years.” —7-person firm in the South, institutional specialization
- “Tax code changes have slowed things down as people try to figure out how the new regulations affect their tax strategy.” —2-person firm in the West, residential specialization