ABI April 2019: Billings return to the plus side, but growth remains soft

ABI April 2019

Just over half of firms report clients feeling at least somewhat nervous about ongoing economic uncertainty.

Following a downturn in firm billings in March, business conditions at architecture firms returned to the positive side in April, with an ABI score of 50.5 (a score over 50 indicates billings growth). However, while this turnaround is welcome news, billings growth generally remains sluggish, with only a slightly larger share of firms reporting increasing firm billings than reporting decreasing billings. But inquiries into new projects and the value of new signed design contracts both strengthened in April, as firms remain fairly optimistic about future work.

An uptick, but not a huge one

Despite a return to modest growth in the national billings index, billings remained soft at firms in most regions of the country in April. Only firms located in the South continued to report improving business conditions, while firms located in the rest of the country saw declining billings for the third consecutive month. This was most noticeable at firms located in the Northeast, where billings softened even further this month. In addition, firms of all specializations also reported declining firm billings in April, with firms with a commercial/industrial specialization reporting the weakest conditions at this time.

The broader economy continued to grow at a steady pace in April, with nonfarm payroll employment growing by 263,000 positions. Construction employment growth was particularly strong, with 33,000 new positions added in that sector alone, while architecture services employment also continued to grow at a steady clip, adding 800 new positions in March (the most recent data available), for a total of 2,400 new positions added in the first quarter of 2019. In addition, the national unemployment rate continued to decline, falling by 0.2 percentage points in April to 3.6 percent, the lowest unemployment rate in four decades. And the GDP also looked strong for the first quarter of the year, growing at an annual rate of 3.2 percent in that period. This growth was led by increases in personal consumption expenditures, private inventory investment, exports, and a smaller decrease in nonresidential fixed investments.

Firms report client uneasiness

In light of last month’s ABI score of 47.8, which indicated a rather sharp decline in firm billings in March, in this month’s special practice questions we asked responding firm leaders about whether their clients have had any reaction or made any changes to current projects due to ongoing economic uncertainty. Overall, just over half of respondents (52 percent) indicated that nervousness about the economic outlook was affecting their clients either modestly, seriously, or a great deal. Only 11 percent indicated that nervousness about economic uncertainty had a serious impact on their clients, and just 3 percent reported that their clients were affected a great deal. This was generally consistent at firms regardless of size, location, or specialization, but the degree of client nervousness was modestly higher at firms located in the Northeast, as well as at firms with a multifamily residential specialization.

Of firms that indicated their clients were at least modestly nervous about the economic outlook, 62 percent reported that in response to economic uncertainty their clients have reacted by slowing or stalling projects. In addition, 36 percent reported that clients have scaled back project budgets, while 17 percent reported that there has been an increase in changes in materials/material substitutions. However, nearly one quarter of firms (24 percent) indicated that their clients have not yet taken any actions in response to economic uncertainty. And when asked about the extent to which various project types have been affected by ongoing economic uncertainty, firms indicated that there was generally little impact overall. The largest share of firms reported that multifamily residential projects were affected to a great extent (23 percent) followed by commercial/industrial projects. For other project types, generally around just 10-11 percent of firms indicated that those project types were affected to a great extent.

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

  • "We continue to be beneficiaries of the large growth in the population in North Texas, and that drives a great deal of economic activity in our area." —10-person firm in the South, commercial/industrial specialization
  • "Still a strong appetite for new projects, but we are seeing increasing pressure from rising construction costs".  —23-person firm in the Midwest, residential specialization
  • "Economy is still flat and the area continues to suffer net outward migration, so qualified labor is scarce." —44-person firm in the Northeast, institutional specialization
  • "I still feel that things will begin to slow, and we decided to put off hiring any graduates this year." —46-person firm in the West, mixed specialization

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ABI April 2019

AIA