ABI January 2017: Billings flat to start the year
Firms concerned about rising healthcare, technology costs
Architecture firms reported that their billings were essentially flat to start off 2017. The ABI score of 49.5 for January indicates a very modest decline in firm billings, and is the first monthly decline since September. With lingering uncertainties about the new federal policies and programs, there may continue to be some fluctuations over the next few months. But the future looks more positive overall, as both inquiries into new projects and the value of new design contracts increased in January, indicating that there is still plenty of new work in the pipeline.
With the exception of firms located in the west, which saw their seventh consecutive month of flat or declining billings after two years of growth, business conditions improved at architecture firms in all regions of the country in January. However, firms with a residential specialization also saw softening billings for the second consecutive month in January, after experiencing steady growth for the first 11 months of 2016. On the other hand, business conditions continued to improve at firms with a commercial/industrial specialization, as well as those with an institutional specialization.
The larger economy remained generally strong and stable in January. Nonfarm payroll employment grew by 227,000, with the construction sector contributing 36,000 of those positions. Architectural services employment climbed to 185,100 in December (the most current data available), the highest it has been since March 2009. Half of the jobs lost in the architectural services sector during the economic downturn have now returned.
And the January edition of the Federal Reserve’s Beige Book report shows that growth continues to be relatively widespread across the country. This is most notable in the Cleveland district, which is experiencing high levels of residential and commercial construction, and in the Richmond district, where multifamily construction continues to expand.
Anticipated 2017 cost increases for architecture firms
When asked to identify business-related issues for 2017 in a survey late last year, the responding architecture firm principals identified managing the rising costs of running their firm as one of the top concerns. This month we asked a series of questions to follow up on that area of concern, and found that 65 percent of respondents reported that managing the cost of running their firm is a major concern, while an additional 31 percent reported that it is a minor concern.
More than eight in 10 (83 percent) respondents indicated that they expect healthcare costs at their firm to increase over the coming year, while 70 percent said that they expect technology costs to increase, 63 percent that they expect liability insurance costs to increase, and 61 percent that they expect employee benefits (other than health/dental insurance) to increase. Many respondents also noted that rising salaries at their firm are another significant expense, and will continue to be one into 2017.
Overall, the responding firms indicated that healthcare and technology costs had the largest proportional increase in 2016, and were also expected to have the largest proportional increase again in 2017. Larger firms were more likely to report that healthcare costs increased the most in 2016, while small firms were more likely to report that their technology costs increased the most. And when looking to 2017, small firms were more likely than large firms to anticipate that liability insurance would be their largest increased expense.
To better cope with these rising firm expenses, architecture firms are enacting a wide variety of strategies. Twenty four percent of firms are deferring capital investments like technology purchases, while 20 percent are outsourcing technical and support services, 15 percent are reducing benefits offered, and 10 percent are choosing to rent equipment and supplies instead of buying them.
This month, Work-on-the-Boards participants are saying:
- "After a big drop in 2008, and increases in regulations, we have stayed small and have chosen to provide additional services to the clients that we have; feasibility, architectural design, construction, interior design." —5-person firm in the West, residential specialization
- "Increasing demand for commercial office buildings, but financing challenges are keeping projects from moving forward." —120-person firm in the South, commercial/industrial specialization
- "Public sector work in Illinois in particular, and the Midwest in general, is very sluggish." —85-person firm in the Midwest, institutional specialization
- "It is extremely difficult to keep or attract professional talent in our area." —35-person firm in the Northeast, institutional specialization
ABI January 2017