Tuesday, October 25, 2011

After Upturn, Architecture Billings Fall Again

The American Institute of Architects’ Architecture Billings Index once again showed decline in the month of September. While there was a slight improvement in August, the trend proved to be short-lived and it seems the industry is back to the decline we saw for the four months prior to that. Not only was there a drop in billings at architecture firms around the country, there was a decrease in average backlog.

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 ABI registered a score of 46.9 for the month of September, a significant drop from the 51.4 posted in August. While the average number of billings declined on a national level overall, there were some regions that did show increase in firm activity. Regional billings scores are computed as rolling three-month moving averages, and recent numbers showed enough strength to boost scores for firms in the Northeast and Midwest into positive territory. Scores for firms in the South and West continued to show relatively steep declines.

Billings levels by firms’ specialization were also mixed last month. Commercial/Industrial firms reported reasonable improvement in September; the ninth straight month of billings gains from mid-2010 through the first quarter of 2011. However, residential and institutional firms once again reported a decline.

Unfortunately, backlogs at architecture firms around the country took a slight hit as well. They decreased from 4.4 months at the end of the second quarter, to 4.2 months in the third quarter. This means that firms can keep current employees working for an average of 4.2 months now without signing onto any new projects. While it might seem like a safety net, a continued decline in backlog and billings could be very detrimental to firms’ revenue stream in just a few months.

Economy remains in slow gear

The broader economy continues to show only modest growth. Just over 100,000 jobs were added in September, bringing the total added for the first nine months of the year to just over one million. That is well below the number required to generate healthy growth in the economy, and, as such, the national unemployment rate is up from 9.0 percent in January to 9.1 percent in September.

Construction employment saw an increase of 26,000 positions in September, the second strongest number of the year. However, only 53,000 positions in this sector have been added since the beginning of the year, or fewer than 6,000 per month. Architecture firms have added only 1,200 positions since January, to a current workforce of just over 153,000 in August, the most recent figures available.


By region, the ABI breaks down as follows from July* to September: Northeast is up 50.8 from 46.4, South is up 47.3 from 46.9, West is up 46.7 from 46.6, and Midwest is up 51.0 from 44.9.

By market sector: Commercial/Industrial is up 52.4 from 47.9, Residential is up 46.4 from 44.7, Institutional is up 48.0 from 47.2, and Mixed is up 50.0 from 47.1.

*Data was not available for the month of August

This month, participants in the AIA Work-on-the-Boards panel were asked to comment on the current status of these downsized architectural staff:

• We specialize in residential and have stayed in business doing multifamily, as the single-family residential market is dead. Firms that held on with government work are now slowing down significantly.
—7-person firm in the West, residential specialization

• RFPs have dropped to first-quarter levels. Some projects already under contract have been slow to get the owner to agree to finalize and send out to bid.
—4-person firm in the Northeast, mixed specialization

• Our office interiors and retail work for large corporate clients are strong, but government, education, etc., are very weak.
—60-person firm in the South, commercial/industrial specialization

• Larger companies are going after local work instead of their typical national work, so smaller companies are having a struggle to get work. We typically have been doing 90 percent national work and 10 percent local. It is now 90 percent local and 10 percent national.
—50-person firm in the Midwest, commercial/industrial specialization

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