ABI December 2018: The year ends with slow billings growth

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The pace of billings growth at architecture firms slowed modestly to end 2018, with AIA’s Architecture Billings Index (ABI) score declining from 54.7 in November to 50.4 in December (any score over 50 indicates billings growth). But despite flat billings in December, firm billings increased every month of the year in 2018. And while concern about a potential economic slowdown looms for 2019, firms are not yet seeing any clear signs of it in their project workloads. Inquiries into new projects and the value of new design contracts both continued to grow steadily in December, while backlogs at firms continued to lengthen. In fact, they reached an average of 6.4 months, the strongest they have been since the collection of backlog data began on a quarterly basis in 2010.

Architecture firm billings also strengthened at firms located in the Northeast and Midwest in December, with firms in the Midwest reporting particularly strong conditions. Business conditions softened for the third consecutive month at firms located in both the South and the West, but the decline remained relatively minimal. Billings also flattened at firms with a residential specialization in December, but strengthened at firms with commercial/industrial and institutional specializations.

National employment ended the year on a strong note, with nonfarm payrolls adding 312,000 new positions in December for total growth of 2.6 million new jobs in 2018. Construction employment also had strong growth in December for a total of 280,000 new positions added for the year, which is 30,000 more than were added in 2017. And architectural services employment continued to increase as well, adding 300 new positions in November (the most recent data available) to reach a total of 199,200 positions across the country, the highest employment level for the industry in a decade.

The latest edition of the Federal Reserve’s Beige Book report, released on January 16, reports modest to moderate growth across much of the country through December into January. While the overall outlook remains optimistic, there are some clouds on the horizon in the form of uncertain financial markets, rising interest rates, falling energy prices, and increased uncertainty around political and trade-related issues.  In addition, home sales softened across much of the country during this period, particularly in the Atlanta and New York City districts, although they did increase in the Richmond and St. Louis districts. On the other hand, nonresidential construction remained relatively strong across the country, although the Minneapolis district reported that some construction firms are having to turn down projects due to lack of available workers.

Is the stock market impacting architecture firms?

This month’s special practice question asked firm leaders about whether or not their firms have seen any direct impact from the stock market volatility in December. While just 5 percent of firms reported that they have seen an impact on current projects that is directly related to the stock market volatility, an additional 29 percent reported that they have heard rumblings of potential impacts but haven’t seen anything definitive just yet. Small firms with annual billings of less than $250,000 were more likely to report having already seen an impact on their projects than large firms with annual billings of $5 million or more (8 percent of small firms versus 2 percent of large firms), as were firms located in the Northeast (7 percent).

Of the firms that indicated that they have seen an impact on their projects from the stock market volatility, the largest share (61 percent) indicated that the impact had come in the form of projects that have slowed, been put on hold, or cancelled. Fifty-six percent reported that they have seen less interest in pursuing projects, and 50 percent reported the scaling back of project scope to manage costs. Just 6 percent reported that projects were being accelerated to complete them before conditions potentially weaken further.

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

  • "Steady, but government shutdowns and economic uncertainty are beginning to be an issue." —21-person firm in the South, residential specialization

  • "The public sector is strong in RFPs regionally; corporate work is very cautious." —100-person firm in the Midwest, institutional specialization

  • "Steady except for a decline in residential work." —8-person firm in the Northeast, mixed specialization

  • "State is flush with money and rolling out projects. Local school districts passed bonds and are planning a lot of work for the next few years." —160-person firm in the West, institutional specialization

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