Wednesday, November 30, 2011

Pace of Billings Decline Slows in October

The American Institute Architects’ Architecture Billings Index reported another decline in the month of October. The small spike in billings over the summer has proven to be short lived, and it appears that work will continue to decline, although it seems to be a slower pace than in September.

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 49.4 in October; slightly higher than the 46.9 registered in September, but still a decline and a significant drop from the increase of 51.4 posted in August. While billings remain low, and the value of new design contracts fell this month, inquiries into new projects remain strong.

Since billings by sector and by firm specialization are reported as rolling three-month totals, there were some bright spots in October despite the overall downturn. Firms in the Northeast reported gains in billings for the second month in a row, along with firms with residential and commercial/industrial specialization.

An ambiguous jobs picture

Nonfarm payroll employment grew modestly in October, adding 80,000 new jobs. However, construction employment declined by 20,000 during the month - essentially offsetting the gains seen in September. Also, architectural services employment declined by 1,500 in September (the most recent data available). Architectural services employment is not seasonally adjusted, and it’s likely that firms are shedding temporary summer employees, as their highest payrolls of the year thus far were reported in June, July, and August.

One promising sign is that more businesses seem to be hiring. The U.S. Bureau of Labor Statistics Job Opening and Labor Turnover Survey for September indicated an increase of 300,000 job postings from August, to a total of 3.4 million. This represents an overall increase of 38% since the official end of the recession in 2009. The first estimate of the GDP for the third quarter of 2011 shows a growth rate of 2.5%, a great improvement over the 1.3% rate shown in the second quarter. A major contributor to this was an increase in personal consumption and consumer confidence, and an increase of discretionary spending on goods and services.


By region, the ABI breaks down as follows from September to October: Northeast is up 51.7 from 50.8, Midwest is down 47.7 from 51.0, West is down 43.5 from 46.7, and South is up 49.1 from 47.3.

By market sector: Commercial/Industrial is up 53.5 from 52.4, Mixed is down 42.0 from 50.0, Institutional is down 47.3 from 48.0, and Residential is up 51.3 from 46.4.

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

Things are still very slow in the public markets, and some smaller firms have gone out of business. But the private market seems to be picking up, and there is a general sense that there may be some light at the end of the tunnel
— 31-person firm in the West, institutional specialization

Very small projects have been picking up, and there are newly proposed projects being considered, indicating that some construction work will continue.
— 6-person firm in the Northeast, commercial/industrial specialization

Business is still very weak in central east coastal Florida. Things seem to be improving, but clients are slow to move forward.
— 2-person firm in the South, residential specialization

Things seem to have slowed in our region. There is less state spending on capital projects, corporate spending is mixed but generally slowing, and higher education is somewhat mixed.
— 116-person firm in the Midwest, institutional specialization

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