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Design Demands Down Considerably
The American Institute of Architects recently reported that demand for design services softened considerably in October. The latest AIA Architecture Billings Index report marks the first decline in billings since January 2021.
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.
October Report
Down several points from September’s score of 51.7, the ABI score continued to fall, this time an additional 4 points to 47.7 in October. The AIA went on to note in its report that inquiries into new projects continued to grow for the month, with a score of 52.3, while the value of new design contracts declined, with a score of 48.6.
“Economic headwinds have been steadily mounting, and finally led to weakening demand for new projects,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Firm backlogs are healthy and will hopefully provide healthy levels of design activity against fewer new projects entering the pipeline should this weakness persist.”
Additional highlights from the October ABI report included:
Since the regional and sector categories are calculated as three-month moving averages, while the national billings index, design contracts and inquiries are reported as monthly numbers, the regional and sector scores may not always average out to the national score.
Data representing the month of October can be viewed here.
Decline in Backlog, Spending
The Associated Builders and Contractors recently released its Construction Backlog Indicator numbers for the month of October, reporting that the CBI wavered downward.
Previously, in September, the CBI had experienced a positive jump, increasing 0.3 points to 9.0 months. The reading was 1.4 months higher than in September 2021 and its highest level since May.
According to the latest ABC member survey, which was conducted from Oct. 20 to Nov. 4, the CBI fell 0.2 points to 8.8 months. The reading is 0.7 months higher than in October 2021.
After surpassing its pre-pandemic level in September, the backlog is now back below the reading observed in February 2020. The commercial and institutional category also witnessed its largest monthly decline since July 2020, reporting 0.4 months below pre-pandemic levels.
Sectors experiencing a decline in backlog included:
Despite the wavering report, the backlog managed to experience an uptick in several sectors, including:
ABC’s Construction Confidence Index reading for sales increased in October, while the readings for profit margins and staffing fell. All three readings remain above the threshold of 50, indicating expectations of growth over the next six months.
Just as the backlog and contractor confidence wavered in October, spending was reported to as well. According to an analysis the Associated General Contractors of America released last week of federal spending data in October, total construction spending decreased by 0.3% for the month, with downturns in homebuilding and most major nonresidential categories.
While the latest report highlights that construction spending was still 9.2% higher than a year ago, seven of the 16 nonresidential construction subcategories were also down. On a seasonally adjusted annualized basis, nonresidential spending totaled $898.4 billion for the month.
Total construction spending, however, not adjusted for inflation, totaled $1.795 trillion at a seasonally adjusted annual rate in October.
When looking to the commercial and residential sectors, AGC reported that private residential construction fell for the fifth consecutive month, down another 0.3%. Additional subcategories that reported reductions in spending included private nonresidential construction (down 0.8%), public construction investments (down 0.9%), residential spending (down 2.6%) and commercial construction (down 0.4%), respectively.
Among large nonresidential categories, highway and street construction was reported to slide 0.7% and manufacturing construction was down 3.3%. In contrast, power construction climbed 1.5%.
Previous ABI Results
In October, AIA released its ABI score for September, revealing a moderate but healthy demand for design services.
Down a few points from August’s score of 53.3, the ABI score dropped 1.6 points to 51.7 in September. Though a small reduction from the month prior, the September reading indicates essentially stable business conditions for architecture firms.
The AIA went on to note in its report that both the new project inquiries and design contracts indexes moderated from August but remained positive with scores of 53.6 and 50.7, respectively.
Additional highlights from the September ABI report included:
The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.
In September, AIA released its ABI score for August, revealing an increase in demand for design services.
The ABI score for August rose to 53.3 compared to 51.0 in July. During the month of August, the score for new project inquiries rose to 57.9 from 56.1 the previous month, while the design contracts score softened slightly with a score of 52.3, down from 52.9 in July.
In August, AIA released its ABI score for July, revealing an increase in demand for design services.
Down a few points from June’s score of 53.2, the ABI score dropped just 2.2 points to 51.0 in July. Though a small reduction from the month prior, the July reading indicates stable business conditions for architecture firms.
The AIA went on to note in its report that the month moderated from June but remained strong with scores of 56.1 and 52.9, respectively. While both of these indicators remain below their mid-2021 peaks, they show that there remains interest in new projects going forward, according to the Institute.
However, the report also pointed out that the July ABI had the slowest rate of growth for new projects since January.
In July, AIA released its ABI score for June, revealing an increase in demand for design services.
Slightly down from May’s score of 53.5, the ABI score dropped just 0.3 points to 53.2 in June. Though differing ever so slightly, the June reading indicates moderately strong business conditions overall.
The AIA went on to note in its report that for the month that both new project inquiries and design contracts indexes continued to show growth, posting scores of 58.2 and 52.2, respectively. However, the Institute added that it was the slowest rate of growth for new projects since the recovery began in early 2021.
In addition, the value of recently signed design contracts also fell to the slowest pace of growth since January 2021.
In June, AIA released its ABI score for May, revealing strong business conditions despite increasing headwinds in the economy.
While the score remained above 50, the May ABI fell three points from the 56.5 reported in April to 53.5. The May report marked the 16th consecutive month that the majority of firms reported billings growth.
In addition, both inquiries into new projects and the value of new design contracts also rose slightly, indicating that there was still a strong interest in new projects and a substantial number of projects in the pipeline for which contracts have already been signed.
While the ABI continues to stabilize through 2022, all throughout the spring and summer of 2021 it climbed. According to reports issued by the AIA, 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.
