ABI November 2018: Firm billings show strong growth

Identifying new qualified staff tops list of business-related concerns for 2019.

Business conditions improved at architecture firms in November as AIA’s Architecture Billings Index (ABI) score climbed to 54.7 for the month, the highest level since January. Despite some concerns about a potential economic downturn, firms continue to report strong billings, as well as new project inquiries. The value of new design contracts also showed strong growth in November, indicating that there is still plenty of work to come in the next few months.

Firm billings remained strong at architecture firms located in the Northeast and Midwest in November for the second consecutive month. Business conditions at firms in the Northeast, in particular, have rebounded dramatically from the slowdown earlier this year. And while growth has slowed somewhat at firms in the Midwest, it remains strong overall. Business conditions did soften modestly at firms located in the West for the second month in a row, while billings remained basically flat at firms in the South. Billings growth was also reported by firms of all specializations this month, with firms with a commercial/industrial specialization seeing the strongest growth.

Conditions were more mixed in the general economy in November. Although nonfarm payroll employment continued to grow, the increase of 155,000 positions for the month was well below average monthly gains of 209,000 for the prior 12 months. In addition, construction employment was essentially flat for the month, with just 5,000 positions added. However, architecture services employment has continued to show steady growth throughout the year, seeing an increase of 5,900 positions for the year so far and climbing to a total of 198,900 employed in the industry as of October—the most recent data available.

The Conference Board’s Consumer Confidence Index also reflected mixed conditions in November: while consumer confidence remains very strong overall, it declined modestly in November. In addition, consumer optimism about the near future fell, as indicated by a declining share of those that expect business conditions to improve in the next six months. However, consumers generally remain optimistic about current conditions, and the share of those reporting that jobs are plentiful increased.

What are the top business concerns for 2019?

This month, firm leaders responding to the survey were asked about their biggest business-related concerns for the coming year. The largest share (30 percent) reported that identifying new qualified staff with appropriate technical and project management skills was one of their top three concerns for 2019, surpassing concerns about firm profitability for the first time in three years. Increasing firm profitability was still selected as one of the top concerns by the second largest share of respondents (26 percent) but that share was well below the 31 percent that selected it as a top concern last year. Coping with an unpredictable economy had the largest increase from 2018 to 2019: 25 percent of firm leaders reported it as a top concern for 2019, compared to just 15 percent that reported the same for 2018. Negotiating appropriate project fees had the largest decrease, with 15 percent reporting it as one of their top concerns this year versus 23 percent that reported the same last year.

The rest of the top-10 concerns for 2019 were essentially the same as last year: issues related to firm management and strategy, project management/marketing/development, and staffing and professional development. Concerns about retaining current staff was the only new item that made the top 10; this is likely due to firms increasingly luring employees away because availability of qualified staff remains so low. Concerns about firm ownership transition issues also increased this year, with 21 percent of firms indicating that it was one of their top concerns for 2019 compared to 17 percent that reported the same for 2018.

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

• “Continues to be strong. Significant inquiries and new opportunities since Thanksgiving.” -21-person firm in the Midwest, commercial/industrial specialization
• “Business conditions are stable at a relatively high level. We are probably currently at peak activity for this economic cycle with some easing of the growth rate through 2019 and 2020.” -80-person firm in the South, institutional specialization
• “Still waiting on developers to kick off major speculative development projects. Majority of work has been pretty small scale or owner-user. This is being hampered by construction cost.” -14-person firm in the West, commercial/industrial specialization
• “Seem pretty steady, but a number of clouds out there. People are playing musical chairs jumping from one firm to the next.” -44-person firm in the Northeast, residential specialization

Download ABI November 2018 (PDF)