ABI April 2018: Healthy growth in billings continues
Firms experiencing considerably difficulty in filling open architecture positions
April extended the string to seven straight months that US architecture firms have reported gains in design billings, as the Architecture Billings Index score of 52.0 was a slight improvement over the 51.0 reading for March. Growth rates for billings, inquiries, and new design contracts are basically keeping pace with 2017, so architecture firms should see another solid year of business activity.
However, the performance of firms across the country is beginning to show some separation. The ABI reading of 50.3 for firms in the Northeast shows only a modest increase over the pace in March, and is the first monthly reading over 50 since last November. The 49.6 reading for Midwestern firms signifies a slight decline in billings, and is the latest in a three month slowdown in billings for firms in this region. In contrast, firms in the South and West are reporting more robust business conditions. In the West, in particular, the 55.1 regional ABI score extends a stretch of solid monthly readings. The ABI score for firms in the South was a modest 51.8, but continues the steady positive monthly readings for this region to six years.
While the regional ABI scores are beginning to show more variation, the building sectors are reflecting greater consistency. Firms with a multifamily residential specialization have slowed a bit from torrid pace of growth in recent months, while firms with a commercial/industrial or institutional specialization reported a modest acceleration in billings in April. Both of these specializations, but in particular firms focused on the institutional sector, have the potential for further upside growth this year.
Economy remains on solid footings
Basic indicators of the health of the broader US economy remain positive. The 2.3 percent growth rate for GDP in the first quarter of the year was somewhat below the prior three quarters, but shows signs of improving as the year unfolds. There has been an increase of 800,000 payroll positions on net nationally so far this year, a pace that would produce 2.4 million new positions for 2018, which would be above the 2.2 million net growth in 2017. This has pushed the national unemployment rate down to 3.9 percent in April. The last time the unemployment rate was that low was the end of 2000. The construction industry has benefitted from this upturn, as there has been a net increase of more than 100,000 payroll positions to date for the year, a pace that would exceed the increase of 250,000 positions for the entire year of 2017.
However, steady growth in the economy has begun to put pressure on its ability to keep pace. In particular, inflation is becoming more of a concern. Consumer and wholesale prices are rising at a 2.5 percent rate recently, well above the average of the past several years. Inflation in building materials costs has been rising even faster, up more than 6 percent over the past year for the entire construction industry, paced by 11 percent increases for lumber and plywood, 7.5 percent for gypsum products, and 7.4 percent for steel mill products. The slated tariffs for steel and aluminum imports will likely push inflation in building products even higher in the months ahead. Interest rates are also responding to the potential for growing inflation. The prime rate charged by banks is currently 4.75 percent, and expected to increase to 5.25 percent by the end of this year, and 6 percent by the end of next year. Ten-year treasury bills recently surpassed 3 percent for the first time since mid-year 2011.
Firms finding increased difficulty finding qualified architectural staff
Multiple years of steady growth in design activity have produced a tight labor market for architects in the eyes of many firm leaders. Currently, over half of architecture firms nationally report that they have architecture positions that they are looking to fill. Of these firms, over 30 percent report that it has been very difficult to fill all or most of their open architecture positions, while an additional quarter of firms indicate that it has been very difficult to fill some of their architecture openings. Only one in eight firms report that it has not been difficult to fill positions.
Experienced staff positions are currently the most difficult to fill. Seventy percent of firms that recently have looked to fill senior design or project management staff, or experienced architects/designers with 7 to 15 years of experience, report that these positions have been extremely difficult to fill. Principals, partners, or other senior firm management positions, architects/designers with 4 to 6 years of experience, and BIM specialists are also reported as being extremely difficult to fill by over half of firms looking to fill any of these positions. Firms looking for emerging professionals (less than 4 years of experience) or students or part-time staff are reporting much less difficulty.
While half of architecture firms with open architecture positions indicate that their difficulty in filling positions has not yet limited their ability to take on projects that they would normally look to undertake, some have been less likely to pursue these projects. Forty percent of firms with open positions indicate that this situation has limited their ability to take on some projects, while for almost 10 percent it has limited their ability to take on many potential projects.
This month, Work-on-the-Boards participants are saying:
- “Overall conditions appear to be busy, especially for larger firms and larger projects, but slowing for small firms and smaller projects.” —5-person firm in the South, commercial/industrial specialization
- “Still challenged by clients that want more for less as well as challenging contract terms written to place too much liability on the design professional.” —320-person firm in the Midwest, institutional specialization
- “Government approval process and the escalating cost of real estate is killing potential projects because the numbers don’t work like they did even six months ago.” —10-person firm in the West, residential specialization
- “We have plenty of work under contract but it has been slow to start. The second half of the year is going to be extremely busy.” —24-person firm in the Northeast, institutional specialization