ABI December 2019: Year ends on a stronger note for architecture firms
One third of architecture firms increased spending on marketing in 2019.
The year 2019 ended with architecture firms reporting modest growth in their firm billings. The ABI score rose to 52.5, as business conditions continued to rebound from a period of softness throughout much of the spring and summer. Inquiries into new work remained strong as well, and the value of new design contracts also showed solid growth for the fourth consecutive month. Although the period of declining and flat billings earlier in the year was one of the most protracted since the end of the Great Recession, firms remain cautiously optimistic about business in the coming months. In addition, backlogs at architecture firms remained strong in December, with firms reporting an average backlog of 6.3 months. Backlogs have extended beyond six months since the spring of 2018.
Business conditions also continued to improve at firms in all regions of the country in December, with the exception of firms located in the Northeast, where billings softened further. Billings declined or were flat every month of 2019 at firms in the Northeast, while firms in the other regions generally saw billings strengthen in the latter part of the year. Business conditions were also generally strong at firms of all specializations, particularly at firms with a commercial/industrial specialization.
Ending the year on a strong note
Growth also continued in the broader economy in December, as nonfarm payroll employment added 145,000 new jobs. Employment growth for 2019 totaled 2.1 million new positions, still strong, but below the 2.7 million positions that were added in 2018. Employment gains in architecture services ended the year on a very strong note, as 1,600 new positions were added in November, the most current data available, for total growth of more than 6,000 new jobs in 2019 so far. On the other hand, consumer confidence dipped modestly in December, according to the Conference Board’s Consumer Confidence Index, largely due to increasing short-term concern about jobs and income.
This month’s special practice question asked responding architecture firms about their marketing strategy and expenditures, and how that has changed over the past year. Overall, half of responding firms reported no change in their marketing expenditures from 2018 to 2019, while just over one third (34%) indicated that they had increased marketing spending during that time. A slightly larger share of firms with either multifamily residential or institutional specializations reported that they had increased marketing spending in the past year, in contrast to firms with a commercial/industrial specialization.
The most commonly cited elements reported as being important to a firm’s marketing strategy were related to previous projects and networking. 70% of firms named previous projects/firm reputation as one of the top three most important elements of their firm’s marketing strategy, 59% selected referrals from previous clients, 44% selected networking/business and professional contacts, 36% selected community contacts/word of mouth, and 20% cited direct marketing to new/existing clients. On the other hand, social media, hiring a PR firm, and firm brochures/materials/newsletters were selected as one of the most important elements of their firm’s marketing strategy by just a small share of firms. Overall, firms think that their marketing efforts are successful, with 89% indicating that they are at least somewhat effective, and 10% indicating that they are very effective.
This month, Work-on-the-Boards participants are saying:
- “Strong finish after a shaky first three quarters. Optimistic about 2020.”—52-person firm in the South, mixed specialization
- “There continues to be interest in new projects, but many clients are not familiar with the current cost of construction, so a fair amount of orientation is needed on many projects.”— 8-person firm in the Midwest, commercial/industrial specialization
- “At this point, 2020 could go either way: there is a lot of work that may move forward, but until that happens, we will work the pipeline.”—5-person firm in the Northeast, institutional specialization
- “Wildfires in northern California are affecting workload. Less interest due to the expense of building in the area.”—2-person firm in the West, residential specialization