ABI January 2020: Firm billings continue to expand in the new year
Despite staffing challenges, few firms are outsourcing domestic design work offshore
Architecture firm billings increased for the fifth consecutive month in January, with about the same share of firms reporting an increase in billings as in December. Business conditions continue to recover from the soft patch they experienced in the spring and summer of 2019, and firms are becoming more optimistic about future work. In addition, the value of new design contracts was particularly strong in January, as clients began to kick off new projects for the year.
Business conditions improved in all regions of the country in January except for the Northeast. Architecture firms in the Northeast are experiencing another protracted period of declining firm billings, as they have off and on for the last several years, and they have not seen any growth in billings in a year. On the other hand, business conditions remain particularly robust at firms located in the South, and are strengthening in the West and Midwest as well. In addition, firms of all specializations reported billings growth for the second month in a row in January.
A strong month for small firms
Nonfarm payroll employment increased by 225,000 new jobs in January, surpassing the average monthly increase of 175,000 positions in 2019. Construction employment had a strong month as well, adding 44,000 new positions. Architectural services employment declined for the first time in a year in December, the most recent data available, falling by 600 positions to a total of 198,500 employees. However, a net total of 5,300 jobs were added in the sector in 2019, more than double the amount that were added in 2018. January was also a strong month for small firms in general, with the National Federation of Independent Business’s Small Business Optimism Index reporting one of the strongest readings in its 46-year history. Small business owners expect increased sales, higher earnings, and higher employee wages in the near future, despite a continued struggle to find skilled workers.
Outsourcing remains rare
This month’s special practice questions asked architecture firms about whether or not staffing issues at their firm have led them to explore outsourcing work on domestic design projects offshore (i.e., subcontracted work to individuals or firms in other countries that are not part of their company). Nearly three quarters of responding firms (72%) indicated that they are at least somewhat concerned about having adequate architectural staff at their firm, with 25% indicating that they are very concerned. Firms with an institutional specialization were more likely to report being concerned about staffing, while firms with residential and commercial/industrial specializations were much less likely to be concerned.
Overall, 57% of responding firms think that their ability to adequately staff projects has not changed over the past year, while 31% think that it has gotten worse. However, outsourcing remains rare, with just 13% of firms indicating that they currently outsource work on domestic design projects offshore. Firms located in the West are most likely to outsource design work offshore (19%), while firms located in the Northeast are least likely (7%). Small firms are also less likely to outsource design work offshore than large firms, as are firms with an institutional specialization.
Of firms that are currently outsourcing design work offshore, about half (51%) report that they only do so occasionally, while just 9% indicate that they do it frequently. Of firms that are not currently outsourcing design work offshore, nearly one quarter (22%) have done so in the past, while of those firms that have never outsourced work offshore, only 12% have even ever seriously considered doing so.
This month, Work-on-the-Boards participants are saying:
- “Slow fourth quarter of 2019, but now very strong again”.— 10-person firm in the South, mixed specialization
- “Local work is slow to start. Clients are not committing to their original start dates.”— 2-person firm in the Midwest, institutional specialization
- “Actually may be seeing the beginning of a slowdown. Backlog has reduced significantly.”— 15-person firm in the North, commercial/industrial specialization
- “Public projects appear to be caught in holding patterns. Many large projects are being discussed and reported on, but few are being released.”—12-person firm in the West, institutional specialization