Wednesday, January 26, 2011

Business Conditions at Architecture Firms Continue to Improve in December

The American Institute of Architects’ Architecture Billings Index showed signs of improvement in December, as more firms reported increasing firm billings than declining for the second month in a row. This marks the first time in three years that this has been the case, which leaves way for cautious optimism going into 2011.

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 ABI recorded a score of 54.2 for the month of December, the second month in a row above 50. Any score above 50 signifies growth at U.S. architecture firms, but until the index remains above 50 for a least three consecutive months, there is no strong evidence of a true economic upswing. Another month of billings growth may offer hope for a real improvement in the architecture industry, but if history serves as a reminder, there is no guarantee of a steady economy.

On a positive note, the unemployment rate fell to 9.4 percent in December, and 103,000 jobs were added. The Federal Reserve’s most recent edition of the Beige Book survey indicated that slight expansion continued in November and December. It also showed that commercial construction remains slow and residential real estate markets weak. Commercial leasing, however, is on the rise in Richmond, Chicago, Minneapolis, and Kansas City districts. Furthermore, healthcare, public infrastructure, and multifamily housing are reported to be the primary drivers of new construction.

On a regional level, December’s ABI was somewhat reassuring. Business has improved in three of the four regions of the country; the South, Northeast, and Midwest. While billings remain weak in the West, the index score has been improving slightly in recent months, and business may begin picking up for the first time since mid 2007.

Also, the three major construction sectors each reported growth for the second month in a row in December. This is the first time that this has happened since June and July of 2007, and certainly shows some sign of recovery.

The AIA has also started collecting data on backlogs at architecture firms on a quarterly basis. In December, the largest share of firms (32%) reported backlogs averaging between one and three months, with an additional 30% reporting backlogs between three and six months. While backlogs remain relatively low at this time, they should begin growing as business picks up, especially as we enter spring.

By market sector, the ABI breaks down as follows from November to December: Residential is up 60.1 from 54.3, Institutional is up 50.6 from 49.3, Commercial/Industrial is up 52.7 from 49.8, and mixed is up 47.8 from 45.8.

By region Northeast is up 55.3 from 51.1, West is down 48.4 from 48.7, South is up 54.8 from 50.5, and Midwest is up 52.9 from 50.9.

Each month, AIA collects feedback from various architectural firms along with data for the ABI. This month, Work-on-the-Boards participants are saying:
  • “Business conditions have greatly improved. We have staff working overtime, we are using contract workers, and we may be hiring again by the end of the first quarter.” - 11-person firm in the West, residential specialization

  • “State, county, and city work is still depressed with only small county project opportunities. There is a noted increase in activity related to university pursuits, but the number of RFQ respondents is still high.” - 42-person firm in the South, institutional specialization

  • “Local conditions are still competitive. I see firms seeking more and more opportunities outside the region and internationally.” - 11-person firm in the Northeast, commercial/industrial specialization

  • “We are doing a lot more work up front to get a project than we have had to do in the past. One example is cost opinions. In the past this was part of our service once we signed a contract. Now it appears that this is becoming an expectation in order to be considered for a project.” - 3-person firm in the Midwest, residential specialization

1 comment:

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