ABI improves; bellwether of economic upturn?

The news came out this morning and it confirmed the chatter PSMJ's management consultants have been hearing for the past few weeks: fortunes are improving in the AEC industry.

The American Institute of Architects released its monthly Architecture Billings Index this morning and the ABI was up more than eight points in March. Indeed, after a series of historic lows, the March ABI rating was 43.7, up from the 35.3 mark in February.

This was the first time since September 2008 that the index was above 40, but the score still indicates an overall decline in demand for design services (any score above 50 indicates an increase in billings).

Perhaps most impressive was the new projects inquiry score of 56.6.

As a leading economic indicator of construction activity, the ABI reflects the approximate 9- to 12-month lag time between architecture billings and construction spending.

"This news should be viewed with cautious optimism," said AIA Chief Economist Kermit Baker. "The fact that inquiries for new projects increased is encouraging, but it will likely be a few months before we see an improvement in overall billings. Architects continue to report a diversity of business conditions, but the majority is still seeing weak activity levels."

Regionally, the ABI breaks down as follows: West (36.1, down from 36.4 in February), South (43.4, up sharply from 35.5 in February and 34.4 in January), Midwest (37.5, up from 35.0 in February), and Northeast (41.8, up dramatically from 32.3 in February and 29.8 in January).

The sector index breakdown is as follows: mixed practice (44.0, up from 40.1 in February), institutional (42.9, up sharply from 36.8 in February), multi-family residential (39.4, up dramatically from 33.3 in February and 29.5 in January), and commercial/industrial (35.0, up from 32.0 in February).

This news comes in the wake of chatter among PSMJ consultants and on the LinkedIn networking site among A/E industry professionals that the economy is turning around. Also, the stock market seems to have risen from the floor reached a few months ago, although it has not returned to the levels it was six months ago. And the American Recovery and Reinvestment Act (the official name for the stimulus bill signed into law in February) seems to have boosted flagging spirits among AEC firm leaders. Proposal activity is ramping up (see PSMJ's Q1 2009 AEC Market Forecast) and projects are moving forward.

Here's what you need to take away from all this: If you are still cutting costs and reducing staff, your firm is likely headed in the wrong direction. The firms that will emerge victorious from this economic downturn are the ones who took those cost-cutting actions several months ago and are now submitting proposals, firming up teaming arrangements, and hiring staff. Yes, hiring staff.

Letting people go 6 to 12 months ago was a difficult, but necessary pill to swallow. In some ways, it's even tougher to convince yourself that getting your people trained is a worthy expense. But, trust me (and trust PSMJ), if you aren't doing everything you can NOW to prepare yourself for the influx of projects that is forthcoming, rest assured that your competition is ready to take your projects, take your people, and perhaps most importantly, take your profits.

Ed