ABI April 2024: Pace of billings decline at architecture firms slows slightly

Business conditions at architecture firms remained soft in April.  

While the AIA/Deltek Architecture Billings Index (ABI) score for the month rose from 43.6 in March to 48.3 in April, it indicates that billings continued to decline at the majority of firms (a score below 50 indicates declining billings). Inquiries into new projects continued to increase, as there remains interest in starting new projects. However, the value of newly signed design contracts dipped slightly in April, as clients remain hesitant to commit to new work. Firms had hoped that the Federal Reserve would start lowering interest rates this spring and that would open new work, but with that decrease now likely on hold until late summer or early fall, firms may have some more slow months ahead of them.
 

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Architecture firm billings continued to decline at firms in all regions of the country in April as well, with firms located in the Midwest and South reporting the largest declines. The current longest duration of decline is found at firms located in the West, where billings have now declined for the last 19 consecutive months. Business conditions also remain soft at firms of all specializations, with the weakest conditions continuing at firms with a multifamily residential specialization, followed by those with an institutional specialization, and then those with a commercial/industrial specialization.

Construction employment growth flattens 

There have been signs of weakness in the broader economy recently as well. While nonfarm payroll employment increased by a strong 175,000 new positions in April, that was well below the average monthly gains of 242,000 over the previous 12 months. In addition, construction employment growth flattened in April, and architecture services employment declined by 300 positions in March (the most recent data available), falling to 205,800, the lowest employment level since December.

In addition, the University of Michigan reported that its Index of Consumer Sentiment declined by 13% in early May, to the lowest reading in six months, with a particularly steep decline reported among consumers located in the West. This decline in consumer sentiment was largely driven by worries about inflation, unemployment, and interest rates. And the Federal Reserve declined to start lowering interest rates at their most recent meeting on May 1, instead holding them steady at 5.5%.

Slight uptick in firms pursuing international projects 

This month we asked architecture firm leaders about recent and future interest in international projects, defined here as projects built outside of the US either for a foreign or domestic client. Overall, 14% of responding firm leaders indicated that they have had billings from international projects over the past five years. This share was highest for firms located in the Northeast (21%) and large firms with annual billings of $5 million or more. At those firms with international projects over the past five years, the most popular regions for projects have been Canada (35% have had projects there), Western Europe (excluding UK) (26%), Central America and the Caribbean (24%), China (22%), East Asia and the Pacific (including Korea, Japan, SE Asia, Australia, Oceania) (22%), and the Middle East and North Africa (20%).

Overall, 9% of responding firm leaders indicated that they currently have billings from international projects, up from 8% of firms that reported the same in August 2023, and 7% that reported the same in February 2023. At these firms, international projects accounted for an average of 9.1% of their gross billings over the past year, with more than one quarter of firms (27%) reporting that they account for more than 10% of their gross billings. These recent projects were most likely to have been in Canada (43% of firms), while 27% reported projects in Central America and the Caribbean, 23% reported projects in the Middle East and North Africa, and 20% reported projects in Western Europe (excluding the UK).

At firms that have not worked on international projects over the past five years, just 7% indicated that they have plans to work on international projects in the future, with 6% saying they’re not sure, and the remaining 87% saying that they have no interest. Of those with interest, Central America and the Caribbean, Canada, and the Middle East and North Africa had the most firms interested in potentially pursuing work there, while few firms expressed interest in pursuing projects in China or South America. And at firms that indicated no interest in pursuing international projects, more than half (52%) indicated that they already have plenty of domestic work, while 48% indicated that they don’t want to deal with the potential headaches of international projects. An additional 40% reported that their firm just doesn’t have any interest in international work, while 38% indicated that they don’t know how to pursue international projects, and 32% indicated that their firm doesn’t have the qualification for international work.

Join us for FREE at the next AIAU live webinar Economic Update: Q3 2024 ABI Insights on Thursday, July 24, 2024 at 2pm ET. Register and learn more at: https://aiau.aia.org/theme/aiau/details.php?id=1163 

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

• “RFPs have been slow. Escalation and interest rates are the big factor. We’ve been fortunate to have won some big projects in the fall of 2023 that will carry our year.”—120-person firm in the Northeast, institutional specialization
• “Not good at all. For the first time since 2008 we are considering layoffs.”—29-person firm in the South, residential specialization
• “We continue to be flat in terms of billings and new project development. We are also seeing a slowdown on the general contractor and subcontractor side and are fielding numerous calls for work from those groups.”—17-person firm in the Midwest, mixed specialization
• “Market appears to be a little more active in the last three months.”—45-person firm in the West, commercial/industrial specialization