ABI November 2019: Architecture firm billings continue to grow at a modest pace

November 2019 ABI

Increasing firm profitability is the top business-related concern for architecture firms in 2020.

Billings at architecture firms increased modestly for the second consecutive month in November, with an Architecture Billings Index (ABI) score of 51.9 (any score over 50 indicates billings growth). Following several months of flat and declining billings through the spring and summer, a slight majority of firms are once again reporting that business conditions are improving. In addition, inquiries into new work strengthened in November, and the value of new design contracts also remained fairly strong. Although some firms continue to report a softening in their billings, the overall picture is one of at least modest growth continuing into the near future.

Three out of four regions see growth

Business conditions also improved across much of the country in November, with firms located in every region except the Northeast seeing billings growth for the month. Firms located in the Northeast continued to report weak billings, although a slightly smaller share reported declining billings in November versus October. And firms of all specializations reported billings growth in November for the first time since February. In particular, business conditions continued to strengthen at firms with a commercial/industrial specialization.

Overall economic activity across the US grew at a modest pace from October through mid-November, according to the latest edition of the Federal Reserve’s Beige Book report, released on November 27. Nonresidential construction activity increased modestly, with firms reporting robust growth in commercial construction in the Boston district and  solid backlogs in the Minneapolis district. On the other hand, office and industrial construction weakened in the New York district, and some projects were reported to be on hold in the St. Louis district due to economic uncertainty. Residential construction activity largely rebounded from the last report, as new residential construction starts were reported to be steady in the New York and Philadelphia districts.

Nonfarm payroll employment posted strong gains in November, with 266,000 new positions added, the largest gains in several months. In addition, the September and October figures were revised upwards for a combined total of 41,000 more jobs than were initially reported and bringing average monthly gains for the last three months to 205,000. Architectural services employment had another strong month in October (the most recent data available), with 1,000 new jobs added, bringing total current employment to 202,700.

Looking ahead to 2020

This month’s special practice question was our annual question asking architecture firms about their biggest business-related concerns for the coming year. Half of the top concerns, including the top two, were issues pertaining to firm management and strategy, while three were concerns related to project management, marketing, and development. The largest share of responding firms, 28%, selected increasing firm profitability as one of their top three concerns for 2020, as issues related to running their firms were generally cited by a larger share of firms this year than in 2018: 24% of firms indicated that managing the rising costs of running a firm was one of their top three concerns for 2020 (versus 19% that selected it as a top concern for 2019), 24% selected dealing with firm ownership transition issues as a top concern (versus 21% last year), and 18% said that negotiating appropriate project fees was a top concern (versus 15% last year).

Staffing issues also remained a top concern for many firms, although the share of firms that selected identifying new qualified staff with appropriate technical and project management skills as a top concern actually decreased from 30% last year, when it was the overall top concern, to 22% this year, despite the fact that firms continue to report having difficulty finding qualified employees to fill vacancies. On the other hand, concerns about offering competitive salaries/benefits for qualified applicants and current staff increased significantly, with 13% identifying it as a top concern for 2020, versus 5% that reported the same for 2019. Firms also remain concerned about finding quality, available, and affordable contractors and construction labor for projects, as a labor shortage persists in that sector as well.

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

  • “Business remains brisk; we have a significant backlog heading into 2020”.—155-person firm in the  West, institutional specialization
  • “Business seems steady here in Chicago though it looks like the multifamily rental sector is finally starting to slow down.”— 10-person firm in the Midwest, mixed specialization
  • “Steady but slow. Rising construction costs are becoming a job killer for the small, boutique-style  projects we tend to get.”— 10-person firm in the South, residential  specialization
  • “Some uncertainty. The state is projecting a budget deficit that may impact state construction funds.”—13-person     firm in the Northeast, institutional specialization

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November 2019 ABI

AIA