ABI April 2021: Architecture firm billings continue to rebound at a brisk pace
Price and availability of construction materials and products is a moderate to serious problem for many firms
Business conditions at architecture firms continued to rebound at a strong clip in April, with the AIA’s Architecture Billings Index (ABI) score rising to 57.9 for the month (any score over 50 indicates billings growth). This is the highest ABI score since prior to the Great Recession, and indicates that a majority of architecture firms saw their billings increase this month. Interest in new projects remained extremely strong as well, with the Inquiries score rising to 70.8, and the value of new signed design contracts reaching 61.7, the highest score in that index since data collection started in late 2010. This means that not only are clients talking to architecture firms about starting new projects, but that they are also signing contracts to begin that work at a high rate.
Architecture firms in all regions of the country also reported increasing billings for the second consecutive month in April, with firms located in the Midwest and South reporting the strongest growth. While growth remains somewhat more modest at firms located in the West, they are still seeing their strongest conditions in nearly three years. In addition, firms of all specializations reported growth again this month, with firms with a commercial/industrial specialization seeing the largest increase in billings for the second month in a row. Business conditions also continued to rebound at firms with a multifamily residential specialization, after they saw a modest decline over the winter.
Supply constraints contribute to inflation
While the broader US economy also continues to rebound from last year’s recession, some new signs of concern have emerged recently. Most notable is the recent increase in the Department of Labor’s Consumer Price Index (CPI), which measures inflation in the prices of consumer goods. The CPI was up 0.8% from March to April, and 4.2% from April 2020 to April 2021, the largest increases for both measures since the Great Recession. In addition, core inflation rose by 0.9% in April, the largest increase in that indicator since 1981. Rising consumer prices at this time are largely caused by supply constraints due to a shortage of key inputs subsequently leading to production delays, and by rising demands for services, particularly travel and hospitality.
In addition, nonfarm payroll employment added just 266,000 positions in April, well below the gains seen in the previous two months, and indicative of concerns staffing up businesses to meet reemerging demand. However, architectural services employment has continued to grow at a steady clip, with 2,400 new jobs added in March (the most recent data available). This is the largest monthly increase since last September, and brings total employment in the industry to 193,400, just 3% below the pre-pandemic peak of 199,200.
Cost and availability issues result in higher construction bids
This month our special practice questions asked responding architecture firms about issues that they have encountered over the last six months with increases in costs of construction materials/products and/or lack of availability of those materials/products. Overall, most firms reported at least a slight problem with increasing costs of both basic construction materials and finished construction products (e.g., HVAC systems, appliances, lighting fixtures) and with lack of availability of, or long lead times for those materials and/or products. The largest share of firms, 37%, reported that increases in costs of basic construction materials has been a serious problem, with an additional 35% of firms saying that it has been a moderate problem. While fewer firms reported that issues with finished construction products were a serious problem (21% for increases in costs of finished construction products and 25% for lack of availability of, or long lead times for, finished construction products), they were more likely to report that it they were a moderate problem.
At firms that reported at least a slight problem with costs and/or availability of construction materials/products over the last six months, respondents indicated that the most serious problem as a result was higher construction bids, with 35% of firms rating that as a serious problem. In addition, 28% reported that project budget overruns were a serious problem, and 17% said that project delays were a serious problem. Luckily, most firms (58%) reported that project cancellations due to materials/products costs/availability have not been an issue so far, and slightly more than half (52%) also reported that reduced project sizes have not been a problem either.
When asked to rate the seriousness of current production and supply chain issues related to construction materials and products for their firm, respondents rated the level of seriousness as an average of 3.7 on a five-point scale ranging from not at all serious (1) to very serious (5). Firms located in the Northeast, and small firms with annual billings of less than $250,000, rated the seriousness slightly higher (3.8), while firms with a multifamily residential specialization rated the seriousness highest overall, at 4.0. This makes sense given that some of the most frequently cited materials affected (lumber, steel joists) are more likely to be used in multifamily residential construction than in other project types.
This month, Work-on-the-Boards participants are saying:
- “Challenges remain to get financing for projects, but activity is definitely picking up.”—62-person firm in the Midwest, institutional specialization
- “Business remains robust, but that has made it difficult to find available consulting engineers and qualified architectural staff to keep up with the firm’s growth.”— 17-person firm in the West, commercial/industrial specialization
- “The market is heated up, projects of all types are firing up, and the request for proposals is at pre-pandemic levels.”—5-person firm in the South, commercial/industrial specialization
- “We have plenty of work ahead now but it has been a slow start to the year. The second half looks very promising.”—24-person firm in the Northeast, commercial/industrial specialization