ABI November 2017: Firm billings see fastest growth pace of the year
With growing workloads, firms pursue wide-ranging set of strategies to deal with staffing issues
Though billings at US architecture firms have seen healthy gains throughout 2017, AIA’s Architecture Billings Index (ABI) for November indicated that the pace of growth accelerated the score jumped to 55.0 for the month, its strongest reading for the year. New project inquiries, as well as new design contracts coming into architecture firms, also signified healthy growth. As such, indicators broadly point to very solid business conditions at architecture firms as 2017 winds down.
Recent strength in ABI readings has pushed all four major regions and the three major building categories into growth territory. In particular, firms in the West have benefitted from the recent strength in billings, as they are reporting their strongest scores in over four years. Firms in the Northeast and South are also seeing healthy increases in design revenue. Firms in the Midwest report only very modest revenue gains. Even more significant is that all of the major building sectors are participating in the solid gains in billings. Residential firms (preliminary November ABI score of 53.9), commercial/industrial (53.3), and institutional (52.4) all are reporting growth levels above the average pace of the first ten months of the year. Balanced growth across the building spectrum points to a healthy construction sector for 2018.
Steady progress continues in the broader economy
The upturn in design activity this year reflects the general healthy expansion of the economy. GDP has grown at a 3 percent annualized rate through the second and third quarters this year. In the fourth quarter, our economy is likely to grow at about this same pace, and 2018 looks to see overall domestic economic gains in the 2.5 to 3.0 percent range. Strong consumer sentiment scores suggests that households are getting more comfortable with the direction of the economy as well as with their own financial situation.
A healthy labor market has helped generate a strong economy. There was a net gain of 228,000 payroll positions nationally in November, and annual 2017 numbers likely will total at least a two million net gain for the sixth straight year. The national unemployment rate held at 4.1 percent in November, which is the lowest rate in almost two decades. Construction employment is slowly recovering. There was a net gain of 24,000 construction positions in November, with 2017 gains potentially as high as 200,000. If we reach that mark, this would be the fifth straight year that the construction sector has added 200,000 or more positions to payrolls.
The Federal Reserve Board shares this general optimism of the health of the economy. At their December meeting, they raised short-term interest rates to the 1.25 to 1.5 percent range, their third one-quarter point increase in short-term rates in 2017. There likely will be an equal number of rate increases this coming year to guard against an overextended economy. Their outlook for economic growth for 2018 has improved, with estimated growth raised to 2.5 percent for the year, likely resulting from the anticipated simulative effects of impending federal tax cuts. However, their long-term growth projections for economic expansion remain unchanged at 1.8 percent, suggesting that, over the long-run, the positive effects of tax cuts will be offset by the likely future increases in the federal debt levels and therefore in interest rates.
Firm staffing issues generating broad range of coping strategies
With the strong level of design activity in recent months, staffing has become an even more serious problem at many architecture firms. Of the almost three-quarters of firms that have looked to add or replace architectural positions recently, over half indicate that it has been extremely difficult to fill some or all of these positions. An additional 37 percent indicate that it has been somewhat difficult to fill some or all of their positions.
As a result, firms were asked what actions they have taken to deal with staffing issues, or would implement if the need arose. At the top of the list was “increase salary offerings above typical levels to attract applicants” which 31 percent of firms indicated that they had already implemented, and another 39 percent indicated that would implement if the need arose. Other options that over half of firms indicated that they had implemented or would implement if needed, were to offer paid overtime or encourage part-time staff to increase hours (62 percent); hire temporary or contract workers (61 percent); and not bid on projects that the firm is qualified to handle (59 percent).
Less frequently mentioned, but still fairly popular options were to extend or delay project schedules on existing projects (50 percent); offer sign-on bonuses to attract new staff (44 percent); outsource excess workloads to other firms (34 percent), and reduce the scope of design services offered by the firm (20 percent). Other strategies mentioned less frequently were to outsource excess workloads to offshore service providers, send work to other offices at their firm, offer mid-year and spot bonuses to staff, and increase benefit offerings.
This month, Work-on-the-Boards participants are saying:
- "This is typically a quiet time of year for new inquiries heading into the holidays and it has been very busy in 2017." —28-person firm in the Northeast, institutional specialization
- "Northern California fires will increase workloads for some firms, and increase pressure on finding design and construction labor." —8-person firm in the West, residential specialization
- "Year-end business, including inquiries, contracts signed, and work on-hand, has been very uncharacteristically strong. Looking forward to a nice start to work in 2018." —7-person firm in the South, commercial/industrial specialization
- "Clients are initiating more speculative projects but are also being surprised by increasing costs. Some continue to believe that fees and construction costs will be what they were a few years ago, and are surprised when they aren’t." —34-person firm in the Midwest, institutional specialization