ABI June 2018: Billings grow at modestly slower pace
Most firm leaders are concerned about rising costs of running their firms
Architecture firm billings increased for the ninth consecutive month in June. Although the ABI score of 51.3 indicates that fewer firms reported an increase in billings than in May, which had a score of 52.8, billings still remain strong overall (any score over 50 indicates billings growth). In addition, the value of new design contracts at firms strongly increased for the second month in a row, and firms continued to report robust backlogs of 6.3 months for the second consecutive quarter. This remains the strongest that backlogs have been since the recession.
Regionally, architecture firm billings were more variable in June. Billings have declined modestly for the last three months at firms located in the Midwest, and have also dropped at firms located in the West. Only firms located in the South have seen consistently strong billings throughout the year so far. Billings are also robust at firms with a residential specialization, as well as those with a commercial/industrial specialization. The pace of growth slowed modestly at firms with an institutional specialization in June but still remains generally strong, as firms with this specialization have not reported declining billings for more than a year and a half.
In the broader economy employment gains remain strong, with nonfarm payroll employment adding 213,000 new positions in June for total growth of 2.4 million new positions over the last year. Construction employment continued to grow as well, adding 13,000 new jobs in June for a total of 282,000 over the last year. And architectural service employment gains remain solid as well, with 900 new positions added in May (the most recent data available) for a total of nearly 10,000 new positions added over the last 12 months. The job outlook for the next six months was also one of the high points from the Conference Board’s Consumer Confidence Index in June. While the overall index declined modestly from May, and the short-term outlook for the next six months fell, consumers reported that they have increased optimism about job gains for the remainder of 2018.
Issues with firm expenses?
This month we asked firm leaders responding to the survey about recent issues related to managing firm expenses. More than nine in 10 firms (92 percent) indicated that they are concerned to some degree about managing the costs of running their firm at the present, with 52 percent reporting that it is a major concern, and 40 percent reporting that it is a minor concern. Small firms tended to be less concerned about firm expenses than large firms, although firms of all sizes were generally concerned.
Forty one percent of firms indicated that employee salaries generated the single greatest proportional increase in firm expenses in 2017, and 44 percent indicated that they expect them to generate the greatest proportional increase in 2018 as well. One quarter of firms reported that employee healthcare costs were the single greatest proportional increase in 2017, and 14 percent reported that it was technology costs. Both of these were anticipated to be the greatest expense in 2018 as well, by similar shares of firms. Few firms expect employee benefits (other than healthcare), office space costs, marketing costs, or liability insurance costs to be the single greatest proportional increase in firm expenses in 2018.
Firms are undertaking a variety of strategies to better cope with their increasing firm expenses, with nearly half of firms (49 percent) indicating that they are working to increase staff productivity. Eighteen percent are deferring capital investments like technology, and 15 percent are outsourcing technical and support services, such as IT, website design, HR, and financial services. Firms are generally not planning to reduce staff/staff hours or employee benefits, cut back on office space or move to cheaper office space, or rent equipment instead of buying.
This month, Work-on-the-Boards participants are saying:
- "Construction continues to be a problem from a labor availability standpoint. The number of skilled laborers seems to be continually shrinking. This is driving up costs and construction time. Both of these issues are causing our clients to worry about the viability of upcoming projects." —5-person firm in the West, institutional specialization
- "Very busy. Work that had been on hold is now all going back into production." —32-person firm in the South, residential specialization
- "The amount of work in the Midwest is substantial. Detroit in particular is very busy." —300-person firm in the Midwest, institutional specialization
- "Still booming, but firms are consolidating faster or being bought out as principals retire." —3-person firm in the Northeast, mixed specialization