February ABI Reveals Demand for Design

THURSDAY, MARCH 24, 2022


Yesterday, The American Institute of Architects released its Architectural Billings Index score for February, revealing that the demand for design services has increased slightly.

The ABI is a diffusion index derived from the AIA’s monthly Work-on-the-Boards survey, conducted by the AIA Economics and Market Research Group. The ABI serves as a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months.

An index score of 50 represents no change in firm billings from the previous month, a score above 50 indicates an increase in firm billings from the previous month and a score below 50 indicates a decline in firm billings from the previous month.

Latest Report

The ABI score rose 0.3 points in February. Although the reading has slightly increased after appearing to slowly decrease December through January, the Institute reports that staff recruitments, materials shortages and inflation were still ongoing concerns in the industry, among others.

The latest score for February marks the thirteenth consecutive month of positive readings for the index. New inquiries were also reported to have increased modestly from 61.9 to 62.5, while design contracts decreased from 56.1 to 55.2, respectively.

“Despite the continued healthy demand for design services, activity is plateauing as firms face a myriad of external challenges, from staffing to supply chain disruptions to high inflation and rising interest rates,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “While the rebound from the pandemic has positively impacted firms in most regions, the prolonged lack of demand for design services in the Northeast is of growing concern.”

Additional highlights from the February report included:

  • Regional averages: South (58.6); Midwest (53.2); West (47.9); Northeast (44.3); and
  • Sector index breakdown: mixed practice (53.8); multi-family residential (52.6); commercial/industrial (55.4); institutional (47.2).

The report notes that the regional and sector categories were calculated as a three-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.

Data representing the month of February can be viewed here.

Staffing, Employment and Compensation Concerns

In a previous report, the AIA noted that ongoing staffing concerns were expected to produce another year of above average compensation increases as well. However, with scores regarding new design contracts continuing to exceed the billings index, the Institute predicts that project backlogs will also continue to grow and could serve as a cushion to ensure healthy future workloads.

With that being said, the industry has also reported strong gains in employment in comparison to 2021. It is also believed that the $1.2 trillion infrastructure package will spur further gains, particularly for the construction sector.

Just last month, the construction industry reportedly witnessed a 40-year high in terms of growth rates in both nonsupervisory positions and wage increases.

According to the U.S Bureau of Labor Statistics, the construction industry added 60,000 jobs on net last month—marking the recovery of virtually all 99% of the jobs lost during the early stages of the COVID-19 pandemic. Currently, construction industry employment (both residential and nonresidential) is 7.6 million, according to the National Association of Home Builders.

In taking a closer look at the February numbers, nonresidential construction employment increased by 29,400 positions, with all three subsectors experiencing growth, and is up 3.9% over the past twelve months. The residential sector added 31,000 and is up 4.5% since February 2021.

The number of unemployed jobseekers with construction experience shrank by 26% over the past year, from February 2021 to 677,000 in February 2022.

In a recent report by Business Insider, construction wages are up 6% higher than this time last year, further intensifying competition. According to AGC, the industry average of $31.62 per hour for such workers exceeded the private sector average by 17%, while the average for the entire private sector climbed even more in February—6.7% year-over-year.

Regardless of what appear to be positive outlooks, industry officials report that the progress is not enough, as the construction sectors will still need hundreds of thousands of additional experienced workers over the next several years to complete Bipartisan Infrastructure-funded projects, in addition to satisfying the continued demand for homebuilding and private nonresidential structures.

At the end of February, ABC estimated that the construction industry would need to attract nearly 650,000 additional workers on top of the normal pace of hiring in 2022 to meet the demand for labor.

Based on historical Census Bureau Job-to-Job flow data, an estimated 1.2 million construction workers will leave their jobs to work in other industries in 2022. It is expected that this will be offset by an anticipated 1.3 million workers who will leave other industries to work in construction.

In 2023, it is anticipated that the industry will need to bring in 590,000 new workers in order to meet industry demand—presuming that construction spending growth slows next year.

Previous Results

Last month, the AIA revealed the ABI for January, revealing a slight improvement in business conditions for architecture firms.

While the ABI score decreased one point to 51, it marked the twelfth consecutive month of positive readings for the index. Inquiries into new work and the value of new design contracts both remained strong as well, reporting scores of 61.9 and 56.1 respectively.

Additional highlights from the January report included:

  • Regional averages: South (61.2); Midwest (51.5); West (47.6); Northeast (46.8); and
  • Sector index breakdown: mixed practice (59.3); multi-family residential (50.1); commercial/industrial (54.2); institutional (47.3).

In January, the AIA confirmed that the ABI ended 2021 on a strong note, having reported a score of 52 for the month of December.

The ABI score for rose one point compared to 51 reported in November. Inquiries into new work and the value of new design contracts also remained strong, however, and backlogs—at an average of 6.5 months—remained near their highest levels since the AIA began tracking this metric in 2010.

Additional highlights about the December report included:

  • Regional averages: South (56.4); Midwest (51.0); West (47.5); Northeast (45.3);
  • Sector index breakdown: mixed practice (60.6); multi-family residential (49.2); commercial/industrial (49.2); institutional (47.6);
  • Project inquiries index: 66.8; and
  • Design contracts index: 55.8.

For its tenth consecutive month, the AIA reported that the ABI revealed a continued demand for design services in November.

The ABI score for the month was logged at being 51. While the score had slightly reduced from October’s 54.3. During November, scoring for both the new project inquiries and design contracts moderated slightly, but remained in positive territory, posting scores of 59.4 and 55.8, respectively.

Additional highlights about the November report included:

  • Regional averages: Midwest (57.6); South (53.7); West (50.9); Northeast (45.5); and
  • Sector index breakdown: mixed practice (56.9); multi-family residential (51.4); commercial/industrial (50.5); institutional (50.1).

In October, the AIA reported that it’s ABI score for the month fell slightly to 54.3 compared to the 56.6 recorded in September. During October, scoring for both the new project inquiries and design contracts expanded, posting scores of 62.9 and 58.0, respectively.

Other key highlights from the October ABI included:

  • Regional averages: Midwest (61.9); South (58.2); West (53.4); Northeast (48.6); and

Sector index breakdown: mixed practice (58.7); commercial/industrial (57.4); multi-family residential (55.8); institutional (51.4).

The previous month, the ABI score increased slightly from 55.6 in August to 56.6. The single-digit increase was witnessed from July to August as well.

While the ABI continued to climb throughout the spring and summer of 2021, it wasn’t until February that the report would indicate its first positive mark since before the COVID-19 pandemic. Reportedly a boost from January’s score of 44.9, the report revealed a score of 53.3.

One of the ABI’s lowest points was at the end of March 2020, when it plummeted from the pandemic. That index revealed a 20.1 drop in points to a score of 33.3. The score nearly doubled the decrease of 9.4 points experienced at the beginning of the 2001 recession and the loss of 8.3 points recorded during the Great Recession, making it the index’s largest single month decline in its nearly 25-year history.

   

Tagged categories: American Institute of Architects (AIA); Architects; Architecture; Billings; Color + Design; Commercial / Architectural; Economy; Good Technical Practice; Maintenance + Renovation; Market; Market data; NA; North America; Program/Project Management; Project Management; Projects - Commercial

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