Friday, February 3, 2012

Firm Billings Continue Rise in December

The American Institute Architects’ Architecture Billings Index increased for the second month in a row in December, marking the first two-month gain since February and March of 2011. Figures were strong enough to generate growth in most regions of the country and in most major construction sectors. Architecture firms in the Northeast, Midwest, and South all reported increases, along with firms specializing in residential, commercial/industrial, and institutional projects.

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 52.0 again in December, the same score as November, and a substantial increase from the 49.4 registered in October. While mixed-practice firms saw declines in December, it was for the most part a month of improvement for firms across the country. Real estate markets saw only modest activity in most regions, but commercial markets showed signs of ongoing improvement in several districts.

Economic growth strengthening

The national economy has been moving towards a modest upswing, and according to a report by the Federal Reserve Board, most of the 12 Federal Reserve districts report economic activity expanding at a moderate pace from late November through December. The general improvement in the economy was reflected in the December employment report - the national unemployment rate fell to 8.5%, the lowest reading since early 2009. Conversely, this number might overstate the underlying improvements in the employment situation, since in recent months the overall labor force has shrunk, lowering the unemployment rate. National payrolls increased by 1.3 million in 2011, and by over 400,000 in the fourth quarter. Construction payrolls increased in December, but were down very slightly for the entire year.

This general improvement in economic conditions is helping the consumer outlook. This past year ended with four straight monthly increases in consumer sentiment, according to the University of Michigan, and the preliminary January rate shows healthy growth over the December reading. Retail spending (even with some moderation in growth toward the end of the year) increased 7.7% in 2011 over 2010 levels, the strongest rate of increase since 1999.

While the ABI numbers point to continued growth in the months ahead, they seem eerily similar to the pattern established in late 2010. In that case, strong ABI numbers in the fourth quarter of 2010 were followed by modest gains in the first quarter of 2011 before diving downward again in the second quarter of the year. With any luck, this won’t be the case, and hopefully we will continue to see gains for the ABI in the months ahead.


By region, the ABI breaks down as follows from November to December: Midwest is up 53.1 from 50.9, West is down 45.1 from 45.6, South is down 54.2 from 54.4, and Northeast is up 52.6 from 49.1,

By market sector: Residential is down 54.3 from 55.8, Commercial/Industrial is up 54.1 from 53.9, and Institutional is up 51.3 from 48.9.

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

• Commercial real estate transactions are up. Speculative commercial real estate construction is nonexistent. Developers with money are buying, (not developing) projects.
— 20-person firm in the Midwest, commercial/industrial specialization

• We are receiving more RFPs (and in particular, more requests for new projects) with our existing clients. Our outlook has improved considerably in the last four months.
— 30-person firm in the South, institutional specialization

• Services traditionally done by architects are being offered more and more by contactors.
— 2-person firm in the Northeast, commercial/industrial specialization

• The majority of our commercial clients have hoarded cash for the past several years, and are now self-financing. Banks play little role in the majority of our work; where they are involved there are significant delays and hurdles to overcome.
— 5-person firm in the West, mixed specialization

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