Friday, April 6, 2012

Another Month of Revenue Growth at Architecture Firms

The American Institute Architects’ Architecture Billings Index increased again in February, marking the fourth consecutive month of growth. While improvement has been modest each month, it is a welcome sign that 2012 has seen only growth so far for the architecture industry. Improvement will hopefully continue for the rest of the year, and on a more widespread scale across all regions and market sectors.

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 51.0 in February. While it was only a slight increase in billings over January’s rate, job inquiries have once again improved significantly. February was also the fourth straight month that the score for inquiries has been above 60, an indication that architecture firms are hearing of more and more potential projects.

Billings by region have remained mostly positive, with firms in the Midwest showing strong growth and those in the Northeast and South reporting modest gains since last month. All three regions are showing momentum that should produce healthy recoveries in design activity over the next few months. Firms in the West, by contrast, are still reporting declining levels of billings. However, a continued upturn in design activity in the rest of the country should begin to pull up billings at firms in this region over the next several months.

By sector, the strongest billings scores are from firms specializing in the commercial/industrial sector, where readings have been at very healthy levels for the past few months. Billings at residential firms have also steadily turned up. An encouraging recent development is that firms focusing on institutional facilities have also reported modest gains over the past three months. Typically, institutional facilities are usually the last nonresidential building sector to recover from a downturn.

Rising employment rates buoy firm billings

The upturn in billings at architecture firms is supported by general strength in the economy. In particular, the employment situation has improved considerably. The last three months have seen national payroll increases of at least 200,000 per month. Still, the economy added more than 1.8 million new payroll jobs in 2011, and the first two months of 2012 have seen another 500,000 added. As a result, the national unemployment rate has fallen to 8.3%, the lowest level since early 2009.

Employment in the construction sector has not fared as well. While this sector has generally been adding jobs, there has been much more volatility. In 2011, 69,000 construction sector jobs were added—just over 1% of the 5.5 million payroll positions currently in the construction sector. The decline of 13,000 positions in February wiped out most of the January gains, so only 8,000 jobs have been added so far in 2012.


By region, the ABI breaks down as follows from January to February: Midwest is up 56.0 from 53.7, South is down 51.3 from 51.6, Northeast is up 51.0 from 50.7, and West remained the same at 45.6.

By market sector: Residential is up 53.3 from 52.6, Institutional is down 50.3 from 51.1, and Commercial/Industrial is down 55.1 from 52.2.

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

• There seems to be a lot more solid leads. Availability of financing is still the primary limiting factor, although it seems like some of our clients are working through that.

—15-person firm in the Midwest, commercial/industrial specialization

• We’re seeing a pickup because of the Eagle Ford Shale [natural gas extraction area] in South Texas. There is also a housing shortage for oilfield workers in the rural towns nearby.

—16-person firm in the South, institutional specialization

• There are new projects beginning, but competition is heavy. Some firms are proposing very low fees. We have also seen continued problems with obtaining financing.

—3-person firm in the South, residential specialization

• We have been trying to hire, and find it surprisingly difficult to find candidates. This is a good sign.

—15-person firm in the Northeast, commercial/industrial specialization

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