ABI July 2017: Upturn at architecture firms continues
Significant share of architecture firms see the opportunities presented by 3D printing
Following on the heels of a strong spring season, billings at US architecture firms continued their upward trajectory in July. AIA’s Architecture Billings Index (ABI) was 51.9 for the month, a bit below the 52.1 average for the first six months of the year but still signifying healthy growth. The ABI has now been reflecting gains in billings for six straight months, after a modest decline in January.
Index scores for project inquiries and new design contracts have been just as positive. The reading for new design contracts was 56.4 in July, its highest reading for the year. Given that new project work is mostly growing faster than billings this year, architecture firms have been building up backlogs in recent months.
The upward trend in billings has pushed up ABI scores at firms in all regions of the country recently. In July, ABI scores in the Northeast, Midwest, and South were all approaching 54, while remaining less positive at firms in the West. Firms with all building type specializations have been benefiting from the healthy business conditions. Multifamily residential as well as commercial/industrial firms posted average scores in excess of 55 for the month, for both specialties the highest readings in three years. Even institutional firms were seeing relatively healthy conditions with a July score of 52.0 for firms with this specialization, just below their average for the first six months of the year.
Economy unlikely to implode, or explode
Growth in the US economy picked up in the second quarter after a slow start to the year. An annualized gain of 2.6 percent more than doubled the 1.2 percent performance of the first quarter, and has at least temporarily quelled concerns over an impending recession. However, being this late into an economic cycle, few forecasters are predicting much likelihood of an acceleration in economic growth. The sense is that gains will stay in the current range for the rest of the year, generating growth for the year between 2 and 2.5 percent, likely with more of the same for 2018.
The employment outlook is reasonably positive. Through the first six months of the year our economy has averaged 180,000 net new payroll positions per month, so the July report of 209,000 net new positions was encouraging. We are on a pace to add well over two million payroll jobs to our economy this year, below the levels of the past few years but healthy gains given our stage in the business cycle. The national unemployment declined to 4.3 percent in July, matching the May low for this cycle and reinforcing the concern over tight labor markets. The construction industry has not fared as well, adding an impressive 88,000 net new positions in the first quarter but dropping to 22,000 in the second quarter, with only 6,000 more in July.
With inflation and interest rates remaining favorable, investors continue to be optimistic in their outlook, as reflected in the recent surge in stock prices. However, general consumer and business confidence has not matched this optimism. Consumer sentiment, as measured by the University of Michigan, jumped in late 2016 and remained high earlier this year, but in recent months has been trending down. Business confidence, as measured by the Conference Board, bounded in the fourth quarter of last year and moved even higher earlier this year. The second quarter reading saw a bit of a reversal as business optimism stumbled.
Many architecture firms are adopting 3D printing
3D printing is seeing growing utilization throughout our economy, and the AEC industry is no exception. This month’s special practice question looked at the adoption of 3D printing at US architecture firms and their views on this technology.
Almost 30 percent of architecture firms have some experience with the applications of this technology. About half of these have used it in-house on billable projects, while others are testing it, outsourcing it, or have design partners, subcontractors, or construction firms that are using the technology. When last surveyed on this topic a little over a year ago, about 20 percent of architecture firms had some involvement with 3D printing, so adoption seems to be increasing at a brisk pace.
Of firms using 3D printing technology directly or indirectly, the biggest perceived benefit is that it enhances the communication of architectural concepts to clients or other members of the design and construction team. The top two concerns with the technology are that the quality of models developed through 3D printing needs improvement, and that client demand to date has been low given the level of firm investment.
Still, architecture firms feel that the application of this technology will continue to grow. Over half of respondents feel that 3D printing will be used by most design firms within a decade. About a third feel that this technology will be used by most construction firms within that time frame. A significant share of firms feel that this technology will dramatically change the design profession and construction industry over the coming decade. In contrast, fewer than 10 percent of respondents feel that 3D printing is a fad that won’t see widespread use in the foreseeable future.
This month, Work-on-the-Boards participants are saying:
- “As the fiscal year ends, state government is evaluating budgets; what’s available for next year. Requests for proposals may be coming up in the coming months.” —40-person firm in the West, institutional specialization
- “Developers and owners have all of a sudden let loose on projects that had been on hold.” —4-person firm in the South, commercial/industrial specialization
- “Shortage of skilled labor and lots of construction activity yielding outrageous high bid prices. Budget busters.” —1-person firm in the Midwest, residential specialization
- “Tight labor market – construction and design professionals – will begin to drive up construction costs and put pressure on architects’ fees.” —54-person firm in the South, mixed specialization