ABI January 2019: Firms open the year strong
One in 10 firms reported that the government shutdown had a direct impact on at least one project.
Despite concerns about the longest government shutdown in history that lingered well into January, architecture firms reported very strong firm billings to start 2019. The AIA’s Architecture Billings Index (ABI) score climbed to 55.3 in January, the highest score in more than two years and substantially higher than the modest growth seen throughout 2018. Indicators of work in the pipeline, including inquiries into new projects and the value of new design contracts, also strengthened in January.
Billings growth was also reported by architecture firms of all specializations in January. Firms in both the South and West regions reported stronger firm billings, following some softness near the end of 2018, while firms in the Northeast reported steady growth for the fifth consecutive month, following a period of declining billings during the first half of 2018. And firms of all specializations also reported improving business conditions in January, although the pace of growth slowed modestly at firms with commercial/industrial and institutional specializations.
Effects of the government shutdown were also generally modest across the broader economy in January. On one hand, The Conference Board’s Consumer Confidence Index dropped in both January and December, largely due to a decline in the short-term consumer outlook for income, business, and labor market conditions. While this decline is most likely due to the shutdown, it is not expected to have a lasting negative impact on consumer confidence and does not appear to indicate the start of a broader downturn.
On the other hand, nonfarm payroll employment posted very strong gains in January, adding 304,000 new jobs—well over the average monthly increase of 223,000 jobs throughout 2018. In addition, construction employment also had strong gains for the month and architecture services employment ended 2018 on a strong note, climbing to a total of 196,000 positions in December for total 2018 gains of 5,800 new positions.
The impact of the shutdown
Following the theme, this month’s special practice question asked survey respondents about the impact of the government shutdown on their firms. While the majority reported no impact, nearly one quarter of responding firms reported either a direct impact on at least one of their projects (12 percent) or an indirect impact through contractors and/or clients that were affected by the shutdown (10 percent). Firms with a residential specialization were slightly more likely than firms of other specializations to report a direct impact on their projects (15 percent), and they were also more likely to have seen contractors and/or clients that were affected (13 percent). Comments from survey respondents indicate that this was likely due to delays on HUD projects, as HUD was one of the agencies affected by the shutdown. On the other hand, just 16 percent of firms with a commercial/industrial specialization reported either a direct or indirect impact from the shutdown.
Of firms that reported experiencing an impact on their projects from the shutdown, 29 percent reported an impact on their January billings, with the majority (14 percent) reporting that the they saw a decrease in billings of less than 5 percent. However, 6 percent of firms that had an impact reported a billings decrease of more than 10 percent. Overall, the most frequently cited impact from the shutdown was a delay in project cashflow (43 percent), followed by clients being more cautious about pursuing projects in an uncertain business climate (37 percent), an inability to sign new contracts during the shutdown (23 percent), and projects delayed due to difficulty obtaining permits (21 percent). Less than 20 percent of firms indicated that they had no new projects coming in during the shutdown, or that they were unable to invoice clients for work during the shutdown.
This month, Work-on-the-Boards participants are saying:
- "After a brief slowdown in the final quarter of 2018, things appear to be full speed ahead in both our private and public work. So many inquiries and proposal requests that we are considering hiring multiple months ahead of our projections." —22-person firm in the South, residential specialization
- "Hiring has slowed in the Metro Detroit region. Several firms have had 'right sizing' layoffs. Most of the larger scale projects have been fully committed and the pace of smaller projects has slowed a bit." —3-person firm in the Midwest, institutional specialization
- "There are some bright spots, such as medical industry investments, but other engines, such as education and manufacturing, are slowing." —11-person firm in the Northeast, commercial/industrial specialization
- "Generally seems to be moving along at a steady, if not growing, pace. Late-cycle financing constraints seem to have weeded out purely speculative money, and the remaining development community is well-grounded." —115-person firm in the West, residential specialization