ABI June 2024: Business conditions remain soft at architecture firms

Business conditions remained soft at architecture firms in June. 

Billings at firms decreased for the seventeenth consecutive month, with an AIA/Deltek Architecture Billings Index (ABI) score of 46.4 (any score below 50 means that billings declined). Although somewhat fewer firms reported a decline in billings in June than in May, the majority continued to experience a decrease from the previous month. Indicators of future work remained generally soft as well, with only slightly more than half of responding firms reporting an increase in inquiries into new work. Firms also reported a decline in the value of newly signed design contracts for the third consecutive month. While many firms still have a healthy backlog of projects in the pipeline, 6.4 months on average, this is the smallest that backlogs have been in more than three years. Despite this ongoing softness, firms remain generally optimistic that conditions will start to improve once interest rates begin to decline but are likely to continue experiencing challenges at least until then.
 

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Business conditions remained soft at firms across the country in June, except for those located in the Northeast, which reported a slight increase in billings for the first time since January 2023. However, conditions softened further at firms located in the other regions of the country, with particularly weak conditions reported at firms located in the Midwest. Billings also continued to decline at firms of all specializations in June. While conditions remained soft at firms with a multifamily residential specialization, conditions are now weaker at firms with other specializations for the first time in nearly two years, most notably at those with a commercial/industrial specialization.

Federal Reserve likely to lower interest rates before the end of the year 

In the broader economy, consumer prices declined in June for the first time since the early days of the pandemic in 2020. The Consumer Price Index (CPI) declined by 0.1% from May, led by declining energy and food prices. This was the second encouraging month in a row, after prices were flat from April to May. This significantly increases the likelihood that the Federal Reserve will start lowering interest rates before the end of the year. While a decrease is unlikely to be announced during the next meeting on July 31, it is highly likely that there will be one in September.

In addition, nonfarm payroll employment continued to grow at a moderate pace in June, adding 206,000 new positions. Construction employment was a significant contributor, adding 27,000 new positions. Architectural services employment was down by a modest 100 positions in May (the most recent data available). Industry employment has been averaging about 206,000 total employees over the last 10 months, after declining from the most recent peak of 208,300 in July 2023.

Smaller firms report being most understaffed 

This month we asked architecture firm leaders about current staffing needs at their firms in terms of architecture staff. On average, most firm leaders (61%) responded that their firm is currently appropriately staffed. However, more than one quarter (28%) indicated that they are currently understaffed, while just 11% believe that they are currently overstaffed. When we asked this question last year, nearly half of responding firm leaders at that time (40%) indicated that they were currently understaffed, with just 7% reporting that they were overstaffed at that time. Currently, large firms with annual billings of more than $5 million and firms with a multifamily residential specialization (19% and 18%, respectively) were most likely to report being overstaffed, while firms located in the Northeast and those with an institutional specialization were most likely to report being understaffed (38% and 37%, respectively).

At firms that reported being currently understaffed, they were understaffed by an average of 25% of their current total staff. Smaller firms with annual billings of $250,000 to $1 million reported being understaffed by the largest share of staff, 53%, while firms with annual billings of $5 million or more reported being understaffed by just a 10% share. Firms located in the West reported being understaffed by 37%, a much higher share of staff than reported by firms located in other regions. Firms that reported being overstaffed reported being overstaffed by a smaller share, an average of 18%. Firms with a multifamily residential specialization reported being overstaffed by a higher share of staff than other firms (23% versus 14% for firms with a commercial/industrial specialization and 15% for firms with an institutional specialization).

Join us for FREE at the next AIAU live webinar Economic Update: Q3 2024 ABI Insights on Wednesday, 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:

• “Given that we do a lot of federal work, the fact that it is an election year is causing us pain. This, coupled with the fact that there is not a budget signed for the year, is causing an uncertainty in work.”—145-person firm in the South, institutional specialization
• “Still have new projects coming in, although they are smaller in scope or size. Have some national clients that are still doing new projects, but not as many as six months ago.”—40-person firm in the West, commercial/industrial specialization
• “Multifamily market continues to be strong, despite all the obvious headwinds. Based on recent reports regarding lumber prices, mid-rise construction costs may start to level or decrease during the next several months.”—60-person firm in the Northeast, residential specialization
• “Softening significantly; professional services that are optional are being pulled back.”—23-person firm in the Midwest, institutional specialization