Thursday, May 21, 2009

ABI Shows Uptick in New Project Inquiries

The American Institute of Architects' Architecture Billings Index held its ground in April after an eight-point jump in March while new project inquiries continued to grow.

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

The AIA reported the April ABI rating was 42.8, down from the 43.7 mark in March. This was the first time since August and September 2008 that the index was above 40 for consecutive months, but the score still indicates an overall decline in demand for design services (any score above 50 indicates an increase in billings). Meanwhile, the new projects inquiry score was 56.8.

"The most encouraging part of this news is that this is the second month with very strong inquiries for new projects. A growing number of architecture firms report potential projects arising from federal stimulus funds," said AIA Chief Economist Kermit Baker. "Still, too many architects are continuing to report difficult conditions to feel confident that the economic landscape for the construction industry will improve very quickly. What these figures mean is that we could be seeing things turn around over a period of several months."

In fact, Baker's comments about the construction industry's economic landscape not improving very quickly mirror comments made earlier this week by Associated General Contractors of America Chief Economist Ken Simonson. Simonson expects the recession will affect the construction industry until at least 2010, saying that the government must repair the credit system and housing market for the economy to recover.

Simonson's comments about the credit system needing repair echo those made today by PSMJ CEO and founder Frank Stasiowski, who predicts this recession will lead to mortgage interest rates of around 10 percent and credit card interest rates around 25 percent.

But, as for the April ABI highlights, it breaks down by sector as follows: mixed practice (44.2, up from 44.0 in March), institutional (43.2, up from 42.9 in March), multi-family residential (43.2, up sharply from 39.4 in March, 33.3 in February and 29.5 in January), and commercial/industrial (41.7, up sharply from 35.0 in March and 32.0 in February).

Regionally, the ABI breaks down thusly: Northeast (47.1, continuing an ongoing upturn from 41.8 in March, 32.3 in February and 29.8 in January), South (45.0, up from 43.4 in March, 35.5 in February and 34.4 in January), Midwest (40.1, up from 37.5 in March and 35.0 in February), and West (39.2, up from 36.1 in March).

At this point, it appears as though smaller firms have already made their cost-cutting moves and are positioning themselves for the economic upturn that many industry watchers, including PSMJ consultants, say is coming soon. It also appears, from seeing the quarterly results posted by the publicly held AEC firms, that the larger firms who were cushioned by their larger backlog, are now dipping into that backlog and making their cost-cutting moves. We have heard anecdotal evidence of firms such as CH2M Hill, HDR, and other well-known firms having to lay people off in the last month or two.

Where does your firm stand? Let us know.


1 comment:

Anonymous said...

Our issue isn't billings (we are lucky enough to have a great backlog) but getting PAID for those billings. Our ability to collect for billings within 30 days has fallen 50% and 31-60 by almost 30%. After that we can almost forget collection without legal action. Obviously, problems collecting are putting a serious strain on our cash flow.

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