Billings at Architecture Firms Hold Steady in January

The American Institute of Architects’ Architecture Billings Index remained fairly neutral in January, as the average billings matched levels in December. Although the growth has slowed compared to the months prior, the trend remains a sign of recovery.

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-to-12 month lag time between architecture billings, and actual construction spending. The monthly ABI scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline.

The ABI recorded a score of 50.0 for the month of January, meaning billings level matched that of December. Because this is the third month in a row the ABI registered a score of 50 or higher, it offers hope that we are on the way to sustainable recovery in the architecture industry. Firms in three of the four major U.S. Census regions reported gains in January, while firms with major facility type specialties all reported at least modest revenue gains for the month.

Firms in the Northeast continue to see an increase in work, as billings have increased each month since August. The same goes for companies in the Midwest since September, and those in the South since November. Firm in the west, however, have seen yet another month of decreased workload.

Conditions for the major construction sectors are improving across the board. Commercial/industrial firms have reported steady growth in billings since last summer, with accelerating levels in recent months. Residential firms have also seen substantial gains in recent months, while institutional firms have reported slight gains. If these trends continue, it could mean a sustainable recovery in the building industry, in both residential and nonresidential sectors.

On a national front, the GDP increased 2.6% in the third quarter, and 3.2% in the fourth on an inflation- and seasonally-adjusted basis. The employment rate, however, remains down, and payrolls only increased by 36,000 positions in January after adding 248,000 through the second half of 2010. A healthy economy should generate between 2.0 and 2.5 million net new payroll positions a year, and generally needs to create between 1.5 million and 1.8 million a year just to keep the unemployment rate from increasing.

With domestic growth expected to be modest, some firms are exploring international design opportunities. Because most international economies are growing faster than the U.S. economy at present, a growing share of construction companies are pursuing work offshore, often in developing countries. Many U.S.-based architecture firms are looking to take advantage of these international opportunities. While international work is expected to be an important segment of firm workloads, it most likely will not be a dominant one, with foreign billings expected to approximately match the 2010 levels.

Statistics

By region, the ABI breaks down as follows from December to January: Northeast is down 50.4 from 55.3, West is down 47.3 from 48.4, South is down 51.5 from 54.8, and Midwest is up 56.4 from 52.9.

By market sector: Residential is down 53.7 from 60.1, Institutional is up 51.3 from 50.6, Commercial/Industrial is up 54.6 from 52.7, and mixed is up 48.7 from 47.8.

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

• Home addition/remodeling projects are very hard to get because homeowners are cutting their costs by not using an architect or by being able to select from numerous unemployed architects.—1-person firm in the Midwest, residential specialization

• Healthcare projects placed on hold last year continue without concrete dates of when they will be initiated. Probably see major projects start with phases as opposed to the entire project being initiated at once.—156-person firm in the South, institutional specialization

• Private sector commercial projects that are not driven by bank financing are very strong, especially on a region wide basis.—9-person firm in the Northeast, commercial/industrial specialization

• Tech clients are getting busy again and investing in new office space.—36-person firm in the West, commercial/industrial specialization