Report: Demand for Design Increases Rapidly

FRIDAY, APRIL 22, 2022


On Wednesday (April 20), The American Institute of Architects released its Architectural Billings Index score for March, revealing a rapid increase in demand for design services.

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 6.7 points in March, rising to 58 from its score of 51.3 reported in February. The latest score for March marks the fourteenth consecutive month of positive readings for the index and is one of the highest scores seen since the economic recovery began just over a year ago.

New inquiries were also reported to have increased modestly from 62.5 to 63.9. Numbers for design contracts also rapidly expanded, revealing an increase of 5.3 points to 60.5.

“The spike in firm billings in March may reflect a desire to beat the continued interest rate hikes expected in the coming months,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “However, since project backlogs at architecture firms have reached seven months, a new all-time high, it appears that firms are having a difficult time keeping up with this uptick in demand for design services.”

Another issue mentioned by the Institute was increasing inflation. In March the Consumer Price Index (CPI) rose by 1.2% for the month and 8.5% from one year ago. The monthly increase was reported to be the largest in nearly two decades and was primarily driven by higher energy prices (largely due to the war in Ukraine) and continued increases in the prices of groceries/food at home.

Additional highlights from the March report included:

  • Regional averages: South (57.2); Midwest (56.2); West (54); Northeast (46.3); and
  • Sector index breakdown: mixed practice (58.2); multi-family residential (57.2); commercial/industrial (55.3); institutional (50.5).

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.

According to AIA, more than half (52%) of firm billings over the past year are from renovations, retrofits, rehabilitations, alterations, additions and historic preservation work. Firms participating in the report also indicated that the end of the first quarter of 2022, backlogs stood at an average of 7.2 months, an increase of more a month from one year ago and a new all-time high since the Institute began collecting data on backlogs in 2010.

Data representing the month of March can be viewed here.

Input Prices, Increased Inflation

According to an analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data by the Associated Builders and Contractors, construction input prices rose 2.9% in March. In nonresidential construction, input prices also witnessed an increase of 2.8%.

Despite these findings, in a press release issued the day before, ABC reported that the construction backlog indicator increased to 8.3, according to a member survey conducted March 22 to April 5. Contractor confidence, however, is down.

Just as reported in March, construction input prices remain 24.4% higher from a year ago, but are up 39.1% from February 2020—the month before the COVID-19 pandemic began to affect the economy. Nonresidential input prices are reported to be 25.0% and 39.2% higher, respectively.

According to an analysis of the data by the Associated General Contractors of America’s Chief Economist, Ken Simonson, March was the eighteenth-straight month in which the cost index rose more than the bid-price index on a year-over-year basis.

In the AGC report, the association noted that prices rose faster than the 17% increase in bid prices for a wide range of inputs in the cost index. According to the latest PPI report, year-over-year steel mill product prices rose 42.9%, aluminum mill shapes jumped 43.7% and plastic construction products increased by 35.2%.

Other products breaching the 17% bid increase threshold included diesel fuel (63.8%), truck transportation of freight (24.5%), asphalt and tar roofing and siding products (22.6%), lumber and plywood (20.9%), gypsum products (20.8%), architectural coatings (20.6%) and insulation materials (17.4%).

In specifying the monthly increase in March on several products, ABC Chief Economist Anirban Basunoted on the ongoing upward price momentum, which included softwood lumber (7.6%), iron and steel (1.4%), key roofing materials (1.6%), and nonferrous wire and cable (4.4%).

The report went on to mention that input prices for natural gas decreased and unprocessed energy materials decreased for the month, lowering by 30.1% and 11.2%, respectively. Crude petroleum prices increased 7.2%. In looking at the three energy subcategories on a year-over-year basis, those percentages are up 62.9%, 58.7% and 62.2%, respectively.

As a result of the continued uptick in prices and inflation, the AGC has urged President Joe Biden to remove the tariffs on several building materials. Currently, tariffs run as high as 25% on steel, 18% on Canadian lumber and 10% on aluminum.

Previous Results

Last month, the AIA revealed the ABI for February, revealing a slight improvement in business conditions for architecture firms. The ABI score rose 0.3 points in February, marking 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 small increase, the Institute reported that staff recruitments, materials shortages and inflation were ongoing concerns in the industry, among others.

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.

In February, 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; COVID-19; Design; Economy; Good Technical Practice; Market; Market data; NA; North America; Program/Project Management; Project Management; Projects - Commercial; Upcoming projects

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