After a slight
decrease in April, the American Institute Architects’ Architecture Billings
Index fell sharply in May. It marked the biggest drop seen in the architecture
industry in almost a year. This pattern in ABI readings mimics 2011,
when billings increased in the first quarter and then reversed in the second
before recovering later in the year. While a decrease in business activity is
never a welcome sign, hopefully this trend proves true and billings will increase
again by the year’s end.
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 45.8 in May, a significant drop from the 48.4 recorded in April. The
drop pushed firms in all regions of the country into declining billings. The
downturn is particularly notable at firms in the Northeast and Midwest, which
had been posting generally positive readings for the past several months. Firms
with an institutional building specialization remained weak, while residential
firms turned slightly negative after several months of positive business
conditions. Firms specializing in commercial and industrial facilities were the
one major category that continued to show growth in the face of the national
downturn.
Economy Entering a Soft Spot
Trends in business conditions at architecture firms are
reflecting a slowdown in the broader economy. On the employment front, growth
in business payrolls slowed to an average of just over 70,000 in April and May,
after averaging monthly gains in excess of 225,000 in the first quarter, and
130,000 in the fourth quarter of 2011. For the first time since late 2010, weak
growth in payrolls in May pushed up the national unemployment rate, which now
stands at 8.2%.
As seen over the past several quarters, a slowdown in
overall employment growth has meant a decline in construction employment.
Construction payrolls declined by an average of 15,000 per month over the past
two months, after recording small gains for the prior three quarters. The
unemployment rate in the construction industry is currently 14.2%, above the
national average but well below its high-water mark of more than 27% in early
2010.
Even with weak job growth, there are signs that the housing
market has begun to turn around. Annualized housing starts for the first four
months of the year have totaled 100,000 more than they did in 2011. Multifamily
construction activity has accounted for almost half of this gain, as this
market has improved dramatically as an increasing share of households are
choosing renting over homeownership until the housing market stabilizes. Sales
of existing homes have also improved, but at a somewhat slower rate.
Statistics
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By region, the ABI
breaks down as follows from April to May: Midwest is down 46.8 from 50.1,
South is down 46.1 from 49.0, Northeast is down 48.6 from 51.0, and West is down
47.6 from 48.0.
|
By market sector:
Residential is down 48.9 from 50.5, Institutional is down 45.6 from 46.6 and
Commercial/Industrial is down 50.7 from 53.8.
This month,
Work-on-the-Boards participants are saying: \
- Activity has slowed over the last 60 days. There was some momentum in March and April, but that has diminished. —55-person firm in the Midwest, institutional specialization
- We have had a flurry of contracts signed, but most are for work that had been previously delayed. [It’s] nice to have more cash flow, but still not very promising long term. —Five-person firm in the Northeast, mixed specialization
- Lots of inquiries and requests for proposals, but the hit rate is less than 35 to 40%. Still lots of bottom-feeders in our segments.—Six-person firm in the South, commercial/industrial specialization
- This is the second consecutive year that we’ve undertaken a re-budgeting exercise. We are readjusting income and labor projections for the rest of the year based on performance through the first four months. We see this as becoming an annual process. —140-person firm in the West, institutional specialization
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