ABI April 2020: Business conditions at architecture firms weaken even further

ABI April 2020

More than eight in 10 firms have applied for PPP loans

Following last month’s precipitous decline, billings at architecture firms sank even lower in April, as the COVID-19 pandemic continued to have a severe impact on firm business. The ABI score declined to 29.3, a new all-time low for the index (a score below 50 indicates decreasing billings), with more than half of responding firms reporting a further decline in their firm billings from March to April. Inquiries into new work also remained extremely low in April, although modestly fewer firms reported a decline in inquiries than in March. However, immediate prospects for new work remain bleak, as the value of new design contracts also remained extremely low.

Regionally, business conditions weakened even further at architecture firms in the Northeast in April, where many areas remained under construction stop orders for the entire month. Those restrictions are slowly being lifted, so firms in that region may see conditions that are not quite as weak in May. Firms located in the West continued to report somewhat less dramatic losses than firms in other regions in April, but overall, billings declined significantly across the country. Billings also weakened substantially at firms of all specializations in March, with firms with a commercial/industrial specialization reporting the largest decline, followed by firms with a multifamily residential specialization.

Employment continues to decline

Conditions continued to soften in the broader US economy as well in April. Nonfarm payroll employment suffered its largest one month decline in the history of the data series (collected since 1939), as 20.5 million jobs were lost. The leisure and hospitality sector shed 7.7 million jobs (47% of employees in the sector) while retail employment declined by 2.1 million jobs. The construction sector declined by 975,000 employees, 206,000 of those from the construction of buildings segment. Architecture services employment lags national data by one month, and in March the sector only shed 200 jobs from its most recent peak of 200,000 total positions in February. However, the coming months will likely see more significant declines in employment for the industry.

Consumers also reported that they continue to be extremely worried about the economy. The University of Michigan’s Index of Consumer Sentiment declined by 19.4% from March to April, as consumers remained deeply concerned about current conditions. However, the portion of the index that measures consumer sentiment expectations for the coming months did not decline as much, as many consumers still have hope that this will be a short-lived downturn.

Payroll Protection Program offers relief to firms

This month we asked responding firms about their experience with applying for loans through the Payroll Protection Program (PPP) under the Federal CARES Act, and other staffing and business impacts they have seen as a result of the pandemic. Nearly all responding architecture firms, 84%, indicated that they have applied for a loan through the PPP, with an additional 2% indicating that they still plan to apply, and the remaining share either being ineligible for a loan or not planning to apply. Of those that have applied, 81% have already received their loan, with 74% reporting that they received the full amount they requested. Just 1% said that they were turned down, while the remaining 18% were still waiting to hear back. Of those that have received their loan, the average amount received so far totals $395,000.

Just under two thirds of responding firms reported having made staffing changes since the outbreak of the COVID-19 pandemic, with the largest share (14%) reporting that they have furloughed some of their staff, with the hopes of calling them back. Thirteen percent indicated that they have eliminated some positions, while 12% have converted some of their architecture positions to part-time or hourly. Of the firms that have eliminated some positions, they reported that on average 12% of their architecture staff was affected. For firms that reported furloughing some of their architecture staff, an average of 21% of their staff was affected, while firms that have converted some of their architecture positions to part-time or hourly reported that just under a quarter of their architecture staff (24%) was affected by this change.

On the other hand, 12% of firms reported that they have actually hired new permanent employees since the pandemic began, 8% have hired students/summer interns, 4% have increased the hours of current employees, and 3% have hired new temporary/short-term employees. While large firms were most likely to report having eliminated some positions or placing some employees on furlough, small firms were most likely to report that they have increased the hours of current employees. And when asked to predict how overall staffing levels at their firm will change from the beginning of the year to the end of the year, 43% of firms expect them to be lower—with just 9% predicting an increase in staffing—for an average projected decline in staffing levels of 6% by the end of 2020.

Finally, firms were asked about the share of projects at their firm that have been negatively affected to date by the COVID-19 pandemic (e.g., delays, on hold, labor/inspection availability issues, mandated work stoppages) and those that have been positively affected to date (e.g., new unanticipated projects, projects expanded, schedules accelerated).

Nearly all firms (97%) reported that at least some of their projects have been negatively affected, with 43% of firms reporting that at least 25% of their projects have been negatively affected (27% of projects affected, on average). Firms in the Northeast reported the largest share of negatively affected projects by far, since the majority of construction shutdowns have been in that region. And while 39% of firms reported that at least some of their projects have been positively affected by the pandemic, 23% of firms indicated that less than 5% of their projects have been positively affected, for an average of just 3% of their projects positively affected by the pandemic.

This month, Work-on-the-Boards participants are saying:

  • “With parallel collapses in the oil and gas industry in our state, we expect that economic conditions will deteriorate, and that the outlook for the AEC sector is stable through 2020, but grim for 2021.”—62-person firm in the South, mixed specialization
  • “The state of California is putting the clamps on capital spending, including studies and budget packages, to conserve dollars for COVID-19. Next year’s budget will likely have less dollars for capital spending.”—160-person firm in the West, institutional specialization​
  • “The pandemic hit at a bad time for design–just as projects were gearing up to enter the construction phase with the spring weather, and as that weather typically spurs new projects to sign on.”—2-person firm in the Northeast, commercial/industrial specialization
  • “Our  existing projects mostly continue, but we expect billings to start going down this month, and late this year and into 2021 looks bad.”—31-person firm in the Midwest, institutional specialization

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ABI April 2020

AIA