ABI May 2018: Firm billings continue to grow
Most firms report increasing staff productivity levels in recent years
Business conditions at architecture firms remained strong in May, with an Architecture Billings Index (ABI) score of 52.8 (any score over 50 indicates billings growth). Slightly more firms reported an increase in firm billings than in April, and May also marked the eighth consecutive month of billings growth. Inquiries into new projects and value of new design contracts also continued to grow at a steady pace, indicating ongoing interest from clients in starting new projects.
In addition, architecture firms in all regions of the country reported an increase in billings in May. Firms located in the Northeast reported modest growth for the second month in a row, following four months of declining billings, while firms located in the South continued to report particularly robust growth. Business conditions also remained strong at firms of all specializations, but particularly at those with an institutional or commercial/industrial specialization.
As had been expected, the Federal Reserve raised the target range for federal funds to 2 percent in mid-June, with at least one more increase anticipated before the end of the year. The June increase was prompted by the strengthening labor market, increased household spending, and strong growth in business fixed investment, among other factors.
The Federal Reserve also released the latest version of their Beige Book report on May 30, which also showed a moderate expansion in economic activity across the country. Homebuilding and home sales were reported to have increased modestly in April and May, and nonresidential construction increased as well. Commercial real estate strengthened in the San Francisco district but softened in the New York district, while construction activity remained generally robust in the Cleveland district.
Nonfarm payroll growth continued in May, with 223,000 new positions added, bringing average monthly gains over the last 12 months to 191,000. Construction payrolls grew by 25,000 positions in May, for a total of 286,000 over the last year, while architectural services employment added 1,500 new positions in April (the most recent data available) for a total of 7,300 over the last year.
Productivity levels at architecture firms have become an increasingly important issue over the last few years. This month, more than half of responding architecture firms (55 percent) indicated that firm-wide productivity levels (defined as output per hour of labor) have increased either a little or a lot over the past few years. Just 20 percent of firms reported that productivity had declined during that period. Most firms reported that they place some degree of importance on increasing staff productivity, with 44 percent indicating that it is a major priority but not their top priority, and 34 percent indicating that it is a key firm concern but not a major priority. Just 2 percent of firms reported that they don’t place a particular focus on productivity, although this climbs to 6 percent for small firms.
Three quarters of firms believe that staff productivity is likely to continue to increase over the next five years, with the quality of staff/staff training at the firm, condition of the economy/project workloads, and firm investments in technology being the most important factors in determining changes in productivity. Nearly 40 percent of firms indicated that quality of staff/staff training was the single most important factor in determining changes in staff productivity, while 22 percent selected condition of the economy/project workloads as the most important factor. Small firms were much more likely to rate the economy as their top factor affecting productivity, while quality of staff was the overall top factor for mid-size and large firms.
This month, Work-on-the-Boards participants are saying:
- "Busy, but the commercial sector might be slowing a bit. We have longer-term projects and considerable backlog, but are still hunting aggressively for longer-term backlog." —150-person firm in the West, institutional specialization
- "Lots of small jobs and everyone seems to need them immediately. Lots of inquiries, but people are still wanting services at a minimal rate. Clients seem shocked by the cost of construction and the increases which have taken place recently." —10-person firm in the South, residential specialization
- "We will see an increase in billings compared to 2017; 2019 forecast looks very good right now." —80-person firm in the Midwest, institutional specialization
- "Have lost projects due to economic uncertainty with tariffs, trade wars, and political issues." —1-person firm in the Northeast, commercial/industrial specialization