Wednesday, June 1, 2011

Architecture Firms Report a Downturn in Business Conditions in April

The American Institute of Architects’ Architecture Billings Index showed a sharp decline in billings for the month of April. This was a discouraging sign, as the ABI has show steady improvement since last October. While this could mean another recession in the architecture industry, it will hopefully prove to be just a minor hiccup along the path of continued growth.

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 registered a score of 47.6 in April, a substantial decrease from 50.5 in March. Firms reported that the threatened federal government shutdown, tornadoes though the Southeast, and dwindling federal stimulus funds for building activity all contributed to the decrease of design activity in April. While inquiries for new projects remained strong for the month, many firms reported that the value of the new design contracts that they did receive had declined when compared to those in March.

Billings levels once again varied from region to region in April. Business conditions at architecture firms located in the Northeast and Midwest regions of the country continued to improve, but firms in the South and West regions saw a decrease in billings. While firms in the South appear to have hit a snag in their recent improvement, due in part to the increase in natural disasters that have struck the region, those in the West continue to struggle to emerge from the economic downturn.

ABI results by firm specialization were mostly negative for the month. Firms that have an institutional specialization, as well as those with a commercial/industrial specialization, had a fairly significant slowdown in their ABI scores in April. Firms with residential specialization continued to do well, posting their seventh consecutive month of billings growth, but conditions for firms that specialize in institutional work remained particularly weak.

Credit still feeling the squeeze

The economic picture on a broader scale remains to look somewhat unclear. While nonfarm payroll employment improved again in April, adding 240,000 positions and architecture firms adding 300 jobs in March (the most current data available), GDP increased by an annual rate of just 1.8% in the first quarter of 2011. This figure is significantly lower than the 3.1% increase reported for the fourth quarter of 2010, due primarily to a decrease in government spending at every level: federal, state and local.

The availability of construction project financing remains a major issue for many architecture firms, with 57% of survey respondents rating the issue as very or extremely serious, and an additional 30% indicating that it is a somewhat serious issue. 45% of respondents think that the availability of credit has continued to grow more restrictive over the past year, with just 16% seeing an easement in credit availability. It was larger firms, with $5 million or more in annual billings, who were least likely to find that access to credit has become more restricted.


By region, the ABI breaks down as follows from February to March: Northeast is down 51.2 from 51.4, South is down 48.3 from 49.7, Midwest is down 51.1 from 53.5, and West is down 47.7 from 50.6.

By market sector: Institutional is down 45.9 from 48.0, Commercial/Industrial is down 49.9 from 54.7, Residential is up 53.9 from 50.8, and Mixed is down 45.2 from 49.8.

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

As we do mostly public sector work, financing is not the issue in the typical sense. For us, significant and continuing cuts in public budgets are the issue.
- 8-person firm in the Northeast, institutional specialization.

Design and construction in our region is undoubtedly going to be affected by the major tornado outbreak and extensive damage to metropolitan areas. Impacts may range from labor and material shortages to additional opportunities for reconstruction work.
- 4-person firm in the South, institutional specialization.

Business has picked up, but the concern over rising oil prices, falling dollar value, some bad legislation through Congress, and increasing inflationary pressure means more uncertainty.
- 80-person firm in the South, commercial/industrial specialization.

Some firms are getting bought up by out of state firms and other firms are closing. We have been receiving many RFPs from cities, counties, etc., not necessarily for a specific project, but for on-call services, probably to replace personnel.
- 3-person firm in the West, residential specialization.

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