Architecture firms ended 2014 on a positive note, as business conditions improved at firms in December. The ABI score of 52.2 for the month, up from 50.9 the previous month, indicates that more firms reported improving business conditions in December than in November. (Any score over 50 indicates billings growth.) Excluding a brief two-month downturn early in the year, business conditions at architecture firms were positive every month in 2014. And there remains more work in the pipeline, as the value of new design contracts continued to increase during the second half of the year, despite a minute downturn in December.
However, business conditions softened at architecture firms in the Northeast region of the country at the end of the third quarter, and billings have continued to decline since. The same region also weathered a downturn at the beginning of 2014, primarily due to severe weather. The other three regions of the country have experienced sustained growth for the second half of the year, with conditions remaining relatively strong through December.
Business conditions also continued to improve at firms of all specializations in December, particularly at those with an institutional specialization, which showed the most improvement from the start of 2014 to the end of the year. And while firms with residential and commercial/industrial specializations experienced billings growth every month of the year, billings at institutional firms did not begin to improve until June, after declining for the previous nine months.
Conditions in the broader economy were positive for much of 2014 as well, with nonfarm payrolls adding an average of 246,000 jobs a month, an increase of more than 50,000 jobs a month from 2013 average monthly growth. Some 252,000 new jobs were added in December, with 48,000 of those coming from the construction sector, and the 5,000 from architecture and engineering services sector. In addition, the unemployment rate fell to 5.6 percent, more than a full percentage point below the rate at the end of 2013.
The latest edition of the Federal Reserve’s Beige Book report on the economy, released on January 14, shows a slightly more modest pace of growth during the last six weeks of 2014. Single-family residential real estate and construction activity was essentially flat during this period, although there was growth in the multifamily residential sector in the Dallas, New York City, Atlanta, and San Francisco districts. In addition, commercial real estate and construction activity increased in nearly all districts across the country.
For this month’s special practice question, architecture firms were asked about issues relating to firm prosperity, defined in this survey as a dimension that expands beyond simple financial security to include such elements as well-being and quality of life, education and mentorship, generosity and giving back to the community, and environmental stewardship. Fewer than 10 percent of firms indicated that firm prosperity is a low priority to their firm or not on their radar at all, while just under half of firms (49 percent) reported that they make the issue of firm prosperity a high priority. An additional 22 percent give the issue a fairly high priority.
When asked which elements of prosperity are most important to their firm’s goals, 95 percent of firms rated financial security of the firm as very important, followed by 88 percent who rated well-being and quality of life for their employees as very important, and 64 percent who rated education and mentorship to emerging professionals as very important. An additional 44 percent said that generosity and giving back to the community was very important to their firm goals, as did 40 percent about environmental stewardship. On a five-point scale, with one being the lowest rating and five being the highest, firms rated their current level of overall prosperity as a 3.4, or slightly above average.
This month, Work-on-the-Boards participants are saying:
• Business climate continues to improve, but it is not surging in most market sectors. Cautious optimism is how most would characterize it, as demonstrated by increased levels of inquiry about potential projects.
— 50-person firm in the Northeast, commercial/industrial specialization
• Slowly improving. Slightly more residential remodel work. Not much increase in commercial work.
— 5-person firm in the Midwest, residential specialization
• Recent decline in oil prices has resulted in several energy company projects being placed on hold/delayed. Also, state revenue projections and large donations are becoming a concern due to the drop in oil prices.
— 38-person firm in the South, institutional specialization
• Seattle still very robust with housing and hotels.
— 17-person firm in the West, commercial/industrial specialization
Jennifer Riskus is Manager of Economic Research for the AIA. The Architecture Billings Index (ABI), produced by the AIA Economics & Market Research group, is a leading economic indicator that provides an approximately nine- to 12-month glimpse into the future of nonresidential construction spending activity.
The ABI Work-on-the-Boards Survey Panel is open to any AIA member who is principal/partner of their firm. Apply to join the ABI panel by completing a brief background information form on your firm here.