Friday, May 6, 2011

Slow Improvement Continues at U.S. Architecture Firms

The American Institute of Architects’ Architecture Billings Index showed improvement again in March, although growth remained very modest. While the increase in billings has been minimal for the past three months, March marks the fifth month in a row that there has been an overall improvement in business conditions.

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-12 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 Architecture Billings Index recorded a score of 50.5 in March, indicating a slight increase in billings at U.S architecture firms over February numbers. Firms in all regions reported billings near or above the 50 level, signifying that the improvement in design activity is broad-based in each region, and most segments of the profession are reporting at least modest improvement since the fourth quarter of last year.

Index results by specialization were mostly positive, especially in the construction sector. Commercial/industrial firms have steadily reported gains each month since last July. Residential architecture firms have also seen increased business each month since last October, although recent gains have been very modest. After seeing gains from November through January, institutional firms–the largest building market for architects– has seen a decreasing workload over the past two months.

Regionally, firms in the Midwest have reported billings growth each month since last September. Firms in the Northeast and South have reported a mix of months with modest growth and months of modest declines over the past two quarters. Western firms reported an increase in billings in March; the first time since August 2007. This is reassuring, and could mean the trend of steadily declining work may finally be over.

Firm employment expected to begin recovering

This steady and increasingly wide-spread growth gives the impression that we are in the midst of a sustainable recovery for the architecture industry, and is giving firms the confidence to hire back employees they lost in the recession. The U.S. economy has added payroll positions each month for the past six, and over this period total payroll growth is close to 900,000 positions. As a result, the national unemployment rate has declined to 8.8 percent, down almost a full percentage point over the past two quarters.

Overall, over a third of firms (35%) anticipate that the number of architecture positions will increase by the end of 2011, while just 10% anticipate a decrease in the number of positions. The remainder expects them to remain at current levels. Larger firms (with billings over $5 million annually) are the most optimistic about expansion this year, with just over half expecting to add positions. However, a relatively high share (almost 14%) anticipate a decline in positions. In contrast, only 17% of smaller firms (with billings under $250,000 annually) expect to add positions, but only 5.5% expect decreases. Almost half (47%) of commercial/industrial firms expect to add positions, while just 2% expect to cut some this year.


By region, the ABI breaks down as follows from February to March: Northeast is up 51.4 from 46.4, South is down 49.7 from 50.1, Midwest is down 53.5 from 55.3, and West is up 50.6 from 49.1.

By market sector: Residential is up 50.8 from 49.7, Institutional is down 48.0 from 48.9, Commercial/Industrial is down 54.7 from 55.0, and mixed is down 49.8 from 51.3.

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

• Competition for all projects is fierce. Payments from clients are slower coming in, causing a trickledown effect of slower payments going out to consultants.
—75-person firm in the Northeast, institutional specialization

• It’s looking promising. Lots of inquiries, but people are very hesitant to sign contracts for the work.
—2-person firm in the West, residential specialization

• [We’re] having to travel further geographically to find the same amount of work. Projects are generally smaller in size and scope, with less margin due to architects reducing fees to ridiculous levels.
—40-person firm in the Midwest, institutional specialization

• Still very tenuous, and with a governor focused on cutting billions from the state budget, governmental work is not even an option.
—2-person firm in the South, residential specialization

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