By Kermit Baker, Hon. AIA - AIA Chief Economist
Billings at U.S. architecture firms dipped in March to a
score of 48.8, the third decline over the past five months. While the modestly
positive ABI scores for January and February suggested that the end of the year
weakness might have been just a weather-related blip, and that architecture
firms could see a recovery in billings in the spring, the weak March reading
indicates a broader soft spot in design activity.
This extended weakness also is reflected in the newly
released design contracts index. The AIA created the design contracts index to
measure changes in the volume of new work coming into architecture firms,
indicating how much project activity firms will be billing for over the coming
months and quarters. The three-plus years of historical data on design
contracts—which are calculated as a diffusion index according to the same
formula as billings—show that new project activity was generally flat
nationally through 2012 and began showing healthy gains through 2013. This
index, however, was negative this January and again in March, indicating that
new work coming into architecture firms has not been increasing recently.
Business conditions remain weak for firms in the Northeast
and Midwest, where firms have reported negative ABI scores for at least five
straight months. Conditions remain strong at firms in the South and moderate at
firms in the West. Neither of these regions has seen negative ABI scores over
the past two quarters, when the national scores have been more volatile.
By sector, residential firms continue to report healthy
conditions. Commercial/industrial firms have seen more volatility in recent
months after a generally positive 2013. Institutional firms looked to be
stabilizing during the first half of last year, but have since reported seven
straight monthly declines.
Severe weather masks
underlying economic conditions
Severe weather conditions certainly restrained economic
growth in the first quarter, but it’s difficult to tell by how much. Net
employment growth was just 162,000 per month on average nationally in the first
quarter, after increasing about by 190,000 per month on average for both 2012
and 2013. However, the slowdown in overall payroll gains did not reduce
construction employment. There was an average increase in construction jobs of
22,000 per month in the first quarter, compared to an average of 15,000 a month
in 2013 and 10,000 in 2012. (Construction employment gains of 20,000 to 30,000
a month over an extended period of time would indicate a healthy construction
industry.)
Housing is one construction sector that was either plagued
by weather in the first quarter or not fundamentally as strong as it was toward
the end of 2013. Monthly housing starts this year averaged 923,000 at a
seasonally adjusted and annualized rate, down from over a million in the fourth
quarter. How quickly (or whether) these numbers bounce back in April and May
will provide a good sense of the underlying strength of the market.
Rising mortgage rates are one factor creating a drag on
homebuilding activity and generally slowing the overall construction recovery.
Yields on 10-year U.S. Treasury notes hit bottom at just over 1.6 percent in
the third quarter of 2012. As of the first quarter of this year, they had risen
more than 100 basis points, to almost 2.8 percent. While still extremely low by
historical standards, this increase (and further accelerations that we’re
likely to see in the months ahead) will cause affordability problems for
households that are only marginally able to qualify for a mortgage.
Opportunities
reemerging in the profession
Nationally, more than 35,000 architecture positions were
eliminated during the Great Recession, according to estimates from the U.S.
Department of Labor and the AIA. Over the past two years, some of these
positions have begun to return. The practice question put to ABI panelists this
month: “To the best of your knowledge, what has happened to architects who lost
their positions during the downturn, and how many are likely to return to the
profession?”
Panelists estimated that almost half of the architects and
unlicensed architecture staff downsized during the recession have resumed
working full-time in the architecture profession. An additional 16 percent are
back working in architecture positions on a part-time or contract basis, while
an another 16 percent are either working outside the profession and expected to
return when architecture positions open up, or are not currently working and
waiting for architecture positions to open. That leaves 14 percent currently
working outside of architecture and unlikely to return, and an additional 10 percent
not working, but not likely to return to the profession (or retired).
Essentially, according to the panelists, just under half of
downsized architectural staff has returned, a third is in the process of
returning or will likely return, and a quarter will not return. While hardly a
comprehensive survey, these results provide a general sense of the magnitude of
temporary and permanent losses to the profession from this past downturn.
The second part of this practice question looked at the age
distribution of downsized architecture staff. According to ABI panelists,
almost a quarter (23 percent) of people who lost their positions during the
downturn were under age 30, a quarter were in their 30s, just over 20 percent
were in their 40s, almost a quarter were between ages 50 and 64, and the
remaining 8 percent were 65 or older. Again, while not a scientific survey, it
does indicate that staff losses were distributed widely across the age
spectrum.
This month, Work-on-the-Boards participants are saying:
Project opportunities
are thin and very competitive. This is only due to most decision-makers being
fearful of taking risks.
—60-person firm in
the Midwest, institutional specialization
Looks like work is
coming, but currently there is little under contract to start now. Several
projects proposed to start in March are not going to start until late April or
May.
—15-person firm in
the South, commercial/industrial specialization
Still slow; clients
are hiring contractors to lead their work and contractors [are] looking for
draftsmen to do their [design] work and engineers to sign for them.
—Two-person firm in
the West, residential specialization
Still extremely
volatile. [There are] mostly small, low-profit projects available.
—One-person firm in
the Northeast, institutional specialization
Source: AIA
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