ABI January 2023: Architecture firm billings decline at slower pace
One in five firms have current international projects, or have had one in the last five years
While architecture firm billings declined for the fourth consecutive month in January, the pace of the decline continued to slow. The ABI score of 49.3 for the month indicates that fewer firms reported softening conditions this month than in December. In addition, inquiries into new projects and the value of new design contracts both strengthened in January, as firms reported an uptick of interest in new projects.
In addition, firms in nearly all regions of the country reported a slight uptick in billings, with only firms located in the South continuing to experience a decline in January. Business conditions were soft at most firm specializations, though, as only those firms with a mixed specialization – meaning that they do not have 50% or more of their annual billings from any of the one other categories (multifamily residential, commercial/industrial, institutional) – reported growth for the third month in a row. (Due to the fact that regional and sector data are reported as three-month moving averages, they may show more variability, and thus may not average out to the national billings number exactly.)
Spring interest rate hikes likely
Conditions in the broader economy remain mixed. The overall Consumer Price Index (CPI) rose by 0.5% in January to an annualized pace of 6.4%. While this means that inflation is lower now than it was in the summer of 2022, it has also risen modestly from the fourth quarter of last year. With the Federal Reserve targeting inflation of around 2%, there is still a way to go to get to that level, which means that further interest rate hikes are likely at their next meetings in March and May.
Employment numbers were stronger in January, with nonfarm payrolls adding a robust 517,000 new positions in January. Architecture services employment ended 2022 with 200,600 positions, the highest level it has been at since prior to the Great Recession. The industry added a total of 4,900 new positions in 2022, versus 9,200 in 2021, and finally surpassed its pre-pandemic peak. However, growth has flattened in recent months.
Larger firms more likely to pursue international projects
This month we asked firm leaders about recent international projects (projects built outside of the US either for a foreign or domestic client) at their firm. Overall, 7% of respondents indicated that they currently have billings from international projects, while 13% of those that do not currently have international billings reported that they have had billings from international projects in the last five years. Firms located in the Northeast and South were more likely than firms located in other regions to report current international billings (8% and 9%, respectively), as were large firms with annual billings of more than $5 million (14%) and firms with an institutional specialization (9%).
At firms that currently have international projects, the average share of their firm’s gross billings from those projects over the last year was 6.7%, with just 13% of firms indicating that 10% or more of their billings were from international projects. Canada is the current top location for international projects at responding firms, with 44% of firms with active international projects reporting current work there, followed by 28% of firms with projects located in East Asia and the Pacific (including Korea, Japan, Southeast Asia, Australia, and Oceania; excluding China), 24% with projects located in the Middle East and North Africa, and 16% with projects located Central America and the Caribbean.
Of the firms that do not currently have international projects, just 4% have plans to pursue international work in the near future, while 20% say that their interest would depend on the situation or project, and 76% have no plans. Firms located in the Northeast (6%) and those with a commercial/industrial specialization (7%) were most likely to indicate that they have plans to pursue international projects in the near future. At those firms that are interested in pursuing international work in the near future, the primary reasons to consider working on those projects would be if current clients were pursuing international opportunities (59%) or to help diversify their practice (49%). And at those firms that have no interest in pursuing international work, the primary reasons cited were that their firm has plenty of domestic work (57%), their firm doesn’t want to deal with the potential headaches of international projects (54%), and their firm has no interest in international work (54%).
This month, Work-on-the-Boards participants are saying:
- “Softening for sure. We have sufficient contracts, but our government clients are gridlocked with too much work to effectively move forward.”—16-person firm in the Midwest, institutional specialization
- “Though it has diminished, client/developer interest remains strong. However, everyone seems to be in a ‘wait and see’ mindset until we reach a terminal interest rate. Once that happens, we can recalibrate and continue.”—53-person firm in the South, commercial/industrial specialization
- “We have not seen many effects of higher interest rates and economic slowdown until recently, now a few large projects have paused for at least a few months as clients reevaluate funding, budgets, and timing.”—62-person firm in the Northeast, residential specialization
- “Holding steady on inquiries. Public sector also seems to be picking up with opportunities. Interest rate hikes are impacting equity acquisitions.”—66-person firm in the West, mixed specialization