Design Demand Continues to Slow


The American Institute of Architects recently released its Architecture Billings Index report for the month of November, reporting that demand for designs is continuing to slow.

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.

In November, the ABI report for October marked the first decline in billings since January 2021. As outlined in December’s report highlighting November’s numbers, the pace of decline has only accelerated.

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.

November Report

Down from October’s score of 47.7, the ABI score for November fell 1.1 points to 46.6 for the month. The AIA went on to note in its report that while the pace of inquiries into new projects slowed, it remained positive with a score of 52.0. New design contracts, however, remained in negative territory with a score of 46.9.

“Given the slowdown in new project work, many architecture firms will rely on their near record levels of backlogs to support revenue,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Still, firm leaders remain largely optimistic about future business trends. Almost two-thirds of architecture firms project that 2023 will be either a good year or great year for their firm.” 

Additional highlights from the November ABI report included:

  • Regional averages: South (50.5); Midwest (47.6); West (45.8); Northeast (42.4); and
  • Sector index breakdown: mixed practice (51.5); institutional (47.7); multi-family residential (46.1); commercial/industrial (44.2).

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

Data representing the month of November can be viewed here.

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:

  • Regional averages: Northeast (54.6); Midwest (52.1); South (51.7); West (51.6); and
  • Sector index breakdown: institutional (58.9); mixed practice (50.3); commercial/industrial (49.6); multi-family residential (47.9).

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.

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.

Improving Backlog

Despite what seems to be looking like a negative demand for designs trend when compared to previous months, the Associated Builders and Contractors recently released its Construction Backlog Indicator numbers for the month of November on Dec. 13, reporting that the CBI is at its highest since the second quarter of 2019.

The ABC member survey was conducted from Nov. 21 to Dec. 6 and revealed a 0.4 jump to 9.2. The reading is noted to be 0.8 months higher than in November 2021.

In its report, ABC shared that the increase in backlog was mostly attributed to strides made by contractors with under $30 million in revenue, which now have their highest level of backlog in over three years.

That sector, in addition to others that experienced upticks included:

  • the Commercial & Institutional industry, from 8.8 to 9.6;
  • the Northeast region, from 7.5 to 8.6;
  • the South region, from 11.2 to 11.5;
  • the West region, from 7.8 to 8.3;
  • the less than $30 million company size, from 7.9 to 8.5; and
  • the $30-$50 million company size, from 9.7 to 9.8.

Despite the positive report, some sectors also fell during the month:

  • the Heavy Industrial industry, from 10.3 to 9.5;
  • the Infrastructure industry, from 8.9 to 6.7;
  • the Middle States region, from 8.7 to 7.8;
  • the $50-$100 million company size, from 10.8 to 10.6; and
  • the more than $100 million company size, from 13.9 to 12.7.

ABC’s Construction Confidence Index reading for profit margins and staffing increased in November, while the reading for sales inched lower. All three readings remain above the threshold of 50, indicating expectations of growth over the next six months.

2023 Outlook

Prior to the end of 2022, Dodge Construction Network shared findings from its year-end report, noting that the construction industry could remain positive in 2023.

Highlighting several contributing factors in its conclusion—such as government funding, manufacturing and digital transformation—the report analyzed key trends and insights across the industry throughout 2022 and what can be expected in the new year.

In maintaining growth in 2022, Dodge predicts that the rise in sustainable construction and adoption of new technologies will remain the leading trends in 2023. This, in addition to recently passed legislation to fund the construction industry, is another factor believed to contribute to a generally positive outlook in 2023.

However, while the economy is still pressed through the ups and downs, Dodge predicts that construction starts in the nation could remain relatively unchanged next year at $1.08 trillion. In expecting economic downturns in the future, the construction industry will be tasked again with managing increased lead times and increasing costs from material prices to labor, while also supplying the built environment with its crucial needs.

While the management of these issues could seem daunting, Dodge foresees that while the U.S. continues to onshore more manufacturing and warehousing, supply chain bottlenecks will be better combatted throughout 2023.

With these obstacles and predictions in mind, it was pointed out in the conclusion of the report that many owners, developers and contractors have begun to rethink workforce strategies, innovation and investments that can drive efficiency and productivity within the challenging climate ahead.

A full copy of the Year End Report can be downloaded here.


Tagged categories: American Institute of Architects (AIA); Architects; Billings; Business conditions; Color + Design; Commercial / Architectural; Design; Design build; Economy; Good Technical Practice; Market; Market data; Market forecasts; Market trends; NA; North America; Project Management; Projects - Commercial

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