ABI March 2019: Billings decline amidst concern about potential slowdown

ABI March 2019

Trends in staff turnover are pushing firms to provide increased career development opportunities.

Billings at architecture firms declined for the first time in over two years in March with the AIA’s ABI score falling to 47.8 (a score below 50 indicates decreasing firm billings). While this score may raise concerns about the start of a period of weaker business conditions, it is important to note that it does follow on the heels of a particularly tough late winter period for much of the country, with record-setting cold, storms, and floods. In addition, many indicators of future work at firms remain positive, with both inquiries into new work and the value of new design contracts continuing to grow, although the pace of growth of design contracts has slowed in recent months. Backlogs of work at architecture firms also rose to a new high of 6.5 months in March, up from 6.3 months one year ago.

Billings soften across the country, recession watch continues

However, softer billings were pervasive across much of the country in March. Only firms in the South region saw billings growth, with firms located in the Northeast reporting particularly weak billings. In addition, firms located in the Midwest reported their second consecutive month of declining billings, the first time that has occurred in two years. Billings also softened at firms of all specializations in March, most notably at firms with commercial/industrial and residential specializations, while the decline was smaller at firms with an institutional specialization.

In the broader economy, there is still no definitive trend toward a recession. A recent commentary from the economics group at Wells Fargo Securities lays out several arguments for why a recession is not necessarily imminent, despite some worrisome signs in recent months, including the recent inversion in the yield curve. The report indicates that consumer finances remain generally strong, that financial market conditions are not currently too restrictive, and that the commercial construction sector is not yet overbuilt. And after paltry gains in nonfarm payroll employment in February of just 33,000 new positions, payrolls rebounded in March, adding 196,000 new positions. In addition, the unemployment rate remained at a low 3.8 percent, and average hourly earnings continued to increase, rising 3.2 percent over the last year. Architectural services employment also continues to grow, with 1,100 new jobs added in February (the most recent data available), for a total of 2,100 added so far in 2019.

Turnover trends spur firms to provide increased support for staff

This month’s special practice questions asked responding architecture firms about recent trends in architecture staff turnover at their firm. Firms largely reported stability in voluntary staff turnover, with 63 percent indicating that turnover rates at their firms remained unchanged over the last year. Nineteen percent of firms indicated that voluntary staff turnover rates for architect and emerging professional positions had increased over the last year, with higher shares of firms located in the Midwest (24 percent), and with a commercial/industrial specialization (26 percent) reporting the same. On the other hand, 17 percent of firms reported that turnover rates decreased, with 22 percent of large firms with annual billings over $5 million and 25 percent of firms with a residential specialization reporting the same.

Of firms that reported either an increase or no change in turnover rates over the last year, 28 percent of firms indicated that turnover was highest among emerging professionals on the path to licensure, and 19 percent reported that it was highest among staff architects. Just under half of these firms (49 percent) indicated that seeking/being offered higher compensation was a very important reason for turnover, followed by career advancement/better opportunities (47 percent rated as very important), and seeking career change (32 percent).

On the other hand, among firms that indicated that turnover decreased, 54 percent cited firm efforts to reduce turnover (including increasing compensation relative to competitors) to be a very important reason why turnover declined, followed by new opportunities for career advancement at their firm (39 percent rated as very important), and firm growth leading to increased opportunities within firm/firm merged with or acquired another firm (38 percent). And among all responding firms (excluding those that indicated that turnover hasn’t been an issue at their firm), 40 percent reported that helping employees develop a career path within the firm has been the one strategy most successful at minimizing unwanted staff turnover, followed by 31 percent who indicated that making compensation more competitive was the most successful strategy.

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

  • “Construction costs continue to increase, and with limited sub-contractor staff, this will likely continue. This will lead to more projects being put on hold due to increased risk and less return on investment.” —140-person firm in the West, institutional specialization
  • “Business conditions remain strong. We entered our seasonal lull late, but RFP activity remains strong.” —23-person firm in the Northeast, commercial/industrial specialization
  • “Softening in the markets and less intensity by developers to get projects underway.” —185-person firm in the Midwest, residential specialization
  • “Public sector work is almost non-existent; private sector remains volatile, unpredictable.” —52-person firm in the South, mixed specialization

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ABI March 2019

AIA