ABI March 2018: Firm billings increase at more sluggish rate

ABI hero for March 2018

Most architecture firms expect to see an impact on their firm’s projects from the planned US tariffs on steel and aluminum

Architecture firm billings increased for the sixth consecutive month in March, although the pace of growth slowed modestly from February. However, the Architecture Billings Index (ABI) score of 51.0 for the month indicates that the majority of architecture firms are still continuing to experience improving business conditions. The pace of growth also slowed slightly this month for both inquiries and the value of new design contracts, although they remain generally strong overall. In addition, responding firms also indicated this month that their firm backlogs rose to 6.3 months, with three quarters of firms reporting that they currently have backlogs of three months or longer, another strong indicator of future work.

Although architecture firm billings at firms located in the Northeast declined for the fourth consecutive month in March, business conditions improved at firms in all other regions of the country, with firms located in the South and West regions continuing to report the strongest growth. Business conditions also remained strong at firms with a multifamily residential specialization, as well as at firms with a commercial/industrial specialization, while billings softened slightly at firms with an institutional specialization.

In the general economy, the University of Michigan’s Index of Consumer Sentiment remained high in March, as consumers reported that they remain generally confident about the state of the economy. However, the March reading was modestly lower than the preliminary projections, primarily due to increased concern about the proposed tariffs on imported steel and aluminum. Higher income households also expressed concern about rising interest rates, likely due to the Federal Reserve’s rate increase on March 21; in general, consumers expect interest rates to continue rising.

Nonfarm payroll employment grew at a more modest pace in March, with 103,000 new jobs added for the month, compared to more than 300,000 that were added in February. Construction employment declined by 15,000 jobs, after several consecutive months of strong growth, and architecture services employment added 200 new positions in February, the most recent data available, climbing to a total of 194,000 employees.

Impact of proposed tariffs

This month we asked responding architecture firm leaders about the potential impact of the planned US tariffs on imported steel and aluminum, and nearly one quarter of respondents (24 percent) indicated that they have already seen specific consequences from the proposed changes. This share was highest for firms located in the West and Midwest regions of the country (32 percent and 28 percent reporting that they have seen consequences, respectively), as well as for firms with an institutional specialization (27 percent). Firms located in the Northeast were least likely to have already seen an impact, with just 13 percent of respondents from that region indicating such.

Regardless of whether or not they’ve already seen specific consequences from the proposed tariffs, 91 percent of respondents indicated that they expect to see at least a minor impact from the tariffs on current and future projects at their firm, with 43 percent anticipating a moderate impact and 21 percent anticipating a major impact. This share was also higher for firms with an institutional specialization, as 27 percent of these firms expect the tariffs to have a major impact on projects at their firm.

Of the firms expecting an impact from the tariffs on their projects, more than half (53 percent) think that it is very likely that construction costs will rise for most projects, while 19 percent think that it is very likely that future projects will require the development of different designs to accommodate changing materials costs/availability, and 14 percent think that it is very likely that less expensive materials will be substituted in projects. More than half of firms think that it is not very likely that current projects will have to be redesigned to accommodate changing material costs/availability or that projects will be cancelled or significantly altered due to changing material costs/availability.

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

  • “Clients are anxious about the tariffs and the uncertainty of costs and availability.” —4-person firm in the South, institutional specialization
  • “Our business is still extremely strong. While our overall billings are down slightly from last month, last month was our best month since 2007.” —9-person firm in the Midwest, residential specialization
  • “Flat. Unemployment is higher than national average. Business growth continues to stagnate.” — 44-person firm in the Northeast, institutional specialization
  • “Excellent. Real estate values and consumer confidence are up.” —5-person firm in the West, commercial/industrial specialization

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ABI hero for March 2018

AIA